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The U.S. Now Uses More Corn For Fuel Than For Feed


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For every 10 ears of corn that are grown in the United States today, only 2 are consumed directly by humans as food. The remaining 8 are used in almost equal shares for animal feed and for ethanol. And, for the 12 months from August 2011 to 2012, the U.S. biofuels industry used more corn for fuel than domestic farmers did for livestock feed – a first for the industry. This significant milestone in the shifting balance between crops for food versus fuel shows the impact of government subsidies for the biofuels industry. And, it could represent a tipping point in the conflict between food and fuel demand in the future.

Over the past year, U.S. farmers used 5 billion bushels of corn for animal feed and residual demand.  During the time timeframe, the nation used more than 5.05 billion bushels of corn to fill its gas tanks. And, while some of the corn used to produce these biofuels will be returned to the food supply (as animal feed and corn oil), a large proportion of this corn will be solely dedicated to our gas tanks.

According to Rabobank’s head of agricultural research, Luke Chandler, this shift in the balance between food and fuel could be the tipping point in world grain markets. China, once able to supply its internal corn demand, currently expects to import (from the U.S.) a few million tons of corn next year. This will likely place additional stress on the United States corn industry, as it will introduce another source of demand (and corresponding market pressures) for the nation’s corn harvests.

According to Steven Rattner, former counselor to the Secretary of the Treasury and lead auto advisor for the Obama Administration, ethanol is a prime “example of government policy run amok.” In his June 2011 Op-Ed in the New York Times, Mr. Rattner stated that:

“Eating up just a tenth of the corn crop as recently as 2004, ethanol was turbocharged by legislation in 2005 and 2007 that set specific requirements for its use in gasoline, mandating steep rises from year to year. Yet another government bureaucracy was born to enforce the quotas.

To ease the pain, Congress threw in a 45-cents-a-gallon subsidy ($6 billion a year); to add another layer of protection, it imposed a tariff on imported ethanol of 54 cents a gallon. That successfully shut off cheap imports, produced more efficiently from sugar cane, principally from Brazil.

Here is perhaps the most incredible part: Because of the subsidy, ethanol became cheaper than gasoline, and so we sent 397 million gallons of ethanol overseas last year. America is simultaneously importing costly foreign oil and subsidizing the export of its equivalent.”

In response to the concerns surrounding the country’s trend toward corn for fuel over food, several U.S. Congressmen are working to eliminate tax incentives that encourage domestic ethanol production through subsidies and import tariffs. In the U.S. Senate, a trio of key Congressmen – Senator John Thune (R-SD), Senator Amy Klobuchar (D-MN), and Senator Dianne Feinstein (D-CA) – are leading a movement to eliminate these subsidies and force domestically-produced ethanol to compete with foreign markets like Brazil’s sugarcane ethanol industry.

In the words of Steven Rattner:

Even farm advocates like former Agriculture Secretary Dan Glickman agree that the [ethanol] situation must be fixed. Reports filtering out of the budget talks currently under way suggest that agriculture subsidies sit prominently on the chopping block. The time is ripe.”

Photo Credit:

1. Photo of roasted corn on the cob in a bowl © stevendepolo by and used under this Creative Commons License.

 

Melissa C. Lott About the Author: An engineer and researcher who works at the intersection of energy, environment, technology, and policy. Follow on Twitter @mclott.

The views expressed are those of the author and are not necessarily those of Scientific American.





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  1. 1. Postman1 4:19 pm 10/10/2011

    We can all thank this type of stupid legislation for the high cost of all food products. Either directly, (expensive corn and corn products such as corn syrup, corn oil, and many more), or indirectly, (expensive ethanol causing higher fuel costs, causing higher transport cost for groceries and other goods). Higher fuel costs also mean increased costs for fertilizer and to operate farm machinery. Since most farming operations are already on a shoestring budget, all costs must be passed to the consumer. Unless this legislative nightmare is reversed, you ‘ain’t seen nothing yet’. Those higher food costs have already caused discontent in the third world (root cause of ‘arab spring’). Anyone who thinks the rest of us are immune to such unrest must have their heads in buried in the sand.

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  2. 2. Ken4Corn 9:09 am 10/13/2011

    The article does not appear to justify the headline. Of the 2010 corn crop, 4.8 billion bushels of corn will be going into feed and residual use and another 1.2 billion bushels in corn equivalence will be used for livestock feed as well (distillers grains from ethanol production. And then consider that, of corn exported, a large percentage is also used for livestock feed. And, frankly, studies are mixed on how much increased ethanol demand has impacted prices. It’s not simply about balancing supply and demand anymore.

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  3. 3. susanwinsor 1:02 pm 10/13/2011

    I agree completely that this is policy run amok, esp with the tight balance of feedgrains globally. However you wreck your credibility by using a photo of sweet corn, an entirely different commodity unrelated to corn for livestock feed and ethanol; and by not including dried distillers grains, an ethanol byproduct used to feed a whole lot of livestock globally. I hope your editorial standards are a little higher in the future.

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  4. 4. Bill_H 6:51 pm 10/13/2011

    This article abounds in disinformation to such an extent it would take 4 times the space of the article to correct all the mythology referred to above. As is so often with disinformation the author uses ample citations of other articles without apparently bothering to check the information lifted as to it’s accuracy an validity (re conclusions). With limited time and space, I will just address the major assaults on the truth..

    First of all we are NOT using more than 50% ofthe field corn crop for ethanol. As only the starch portion of the corn is fermented into ethanol the protein is recovered and becomes a high nutrient livestock feed supplement which is supplemented for corn and soybean feeds. When you take this into consideration the net usage of corn for ethanol is more like 355 of the field corn crop. The author might consider getting informed on the issue before printing erroneous claims. (more to come)

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  5. 5. Bill_H 7:12 pm 10/13/2011

    Now, as to Mr. Rattners comments, which the author apparently offers as the final word on the subject – “policy run amok”? Hardly..

    Ethanol displaces about 10% of the gasoline that would have been consumed in autos and imported. While much has been proffered on how much ethanol’s demand for corn may have caused the price of corn (and therefor food) to rise – due to market forces – little has been said about ethanol’s impact on the price of petroleum/gasoline – due to market forces. You can’t have it one way (affects corn price) and not the other (affects price of oil/gasoline).

    Actually, Francisco Blanch, Chief Commodities Strategist for Merrill Lynch, was quoted in the Wall Street Journal, May 2008, saying that ethanol has driven down the price of oil/gas about 15% (note that we are making more ethanol now than we were in 2008). In 2010 we consumed almost 139 billion gallons of fuel for light personal transportation at an average price per gallon of roughly $2.84 (in 2010). Without ethanol that price would have been about $3.34. The difference is what we saved as consumers of gasoline.

    The total amount saved was almost $70 Billion. Yes, that’s no misprint we saved, in the aggregate, roughly $70 BILLION on gasoline because ethanol supplied about 10% of our fuel for light transportation in 2010. NOw that’s about 12 times the ‘cost’ of the Ethanol Excise tax credit in 2010. Let it be noted that the Excise Tax Credit will not be in effect in 2011 or later so we will enjoy a reduction in the price of oil/gas without the cost of the Excise tax credit.

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  6. 6. Bill_H 8:08 pm 10/13/2011

    But that is not the whole picture.

    Ethanol by reducing our imports of oil and by adding to work done domestically (making the ethanol) has increased the Gross Domestic Product about $95 Billion. Others have placed this number higher.

    And what about the price impact on food? This will require some details – are you still with me?

    Farm commodities represent about 11.8% of the retail price of food. No, really. The other 88.2%, according to the USDA, are costs added after the commodities leave the farm and are processed into final form, distributed and packaged to retail markets where costs are also incurred in selling the final product.

    Now, how much of all farm commodities, in terms of market value is corn? Well, corn represents about 14%-15% of the market value of all farm commodities. So then, corn from the farmer, represents about 1.6% of the retail price of all food items. (.118 * .14 = 0.0165).

    Now, how much does ethanol impact the price of corn. From June-July 2010 to June-July 2011 the price of corn rose about 100%. How much did the demand for corn to make ethanol increase in that period, – as a percent of the supply of corn?? Well that would be 4%. Yes, the increase in demand for corn to make ethanol – as a percent of the supply of corn was 4%. NOW REALLY. DOES ANYONE THINK AN INCREASE OF 4% IN DEMAND CAN CAUSE THE PRICE TO DOUBLE?? I DON’T THINK SO! The fact is ethanol has a relatively small impact on the price of corn – especially when you consider that ethanol also reduces the cost of petroleum related products.

    Petroleum related products, such as fuel, chemicals, transportation and packaging (plastic for packaging food for retail sale) turns out to equal almost 6% (5.8%) of the retail price of food. Note that is about 3.5 times the proportion that corn represents (1.6%). Considering that ethanol reduces the price of petroleum about 15% (BTW: others have estimated this to be more like a reduction of 30%) that means that the 3.5% (petroleum costs as a % of retail price of food) would be 6.8% WITHOUT ethanol present to reduce demand for petroleum.

    This means ethanol is reducing the price of food (through petroleum related costs) by a little more than 1%. In other words, ethanol is lowering the price of food by a percentage that is about 60% as large as the entire percentage that corn is of the retail price of food (1%/1.6%= 0.6). Meaning that when the entire effect of ethanol on the price of food is accounted for the impact is actually quite small.

    So what did cause the price of corn (and many other commodities) to rise so much? – note I said MANY OTHER COMMODITIES – because, if you check it out, a lot of commodities rose dramatically over that period – not just corn.

    So why did commodities prices jump up so much (when demand did not increase significantly over that period)? The answer is SPECULATION IN COMMODITIES INDEX FUNDS. The Commodities Index Fund is something invented by ….Goldman Sachs. Read Michael Masters testimony before a Senate committee on the massive increase in money going into commodity index funds (http://hsgac.senate.gov/public/_files/052008Masters.pdf ) He states:

    “Assets allocated to commodity index trading strategies have risen from $13 billion at the end of 2003 to $260 billion as of March 2008″

    ….please note that’s an increase by a factor of TWENTY!. And the amount of speculation in commodities futures contracts continues to be massive today. The number of futures contracts held by speculators is equal to or greater than the contracts held by commercial buyers (that is, entities which use the commodities they are buying futures contracts in, and who will take delivery of the commodities). Speculators have no interest in taking delivery of the commodity. They are buying futures contracts solely to bet on the future movement of the price of the commodity. But there are so many speculators that with their buying of so many futures contracts they themselves are sending up the price of the commodities they are betting on.

    THAT IS THE REASON FOOD COMMODITIES AND MANY OTHERS HAVE BEEN SPIKING WITHOUT A MASSIVE RISE IN THE DEMAND FOR THOSE COMMODITIES FROM PROCESSORS AND FINAL CONSUMERS.

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  7. 7. Bill_H 8:36 pm 10/13/2011

    I would like to provide an assessment of the impact of ethanol that should be simple and quite clear.

    Ethanol currently meets about 10% of our light vehicle fuel needs. As such, it is reducing GHG emissions by the light vehicle fleet about 4%.*

    NOt so much, right? Well, how many Priuses would it take to get a 4% reduction to the aggregate GHG emissions from the light vehicle fleet? Well, assuming that the Prius achieves about 36% reduction in GHG emissions compared to a comparable weight and payload car that means you would need to have enough Priuses to equal about 115 of the entire fleet. And that comes to about 27,000,000 Priuses. Yes, that is twenty-seven MILLION Priuses would be needed to get the same GHG reductions we are currently enjoying from the use of ethanol.

    I wonder how many years it would take to get 27 million Priuses sold? By the way the annualized cost of 27 million Priuses (assuming a 14 yr useful life) would be $8.5 Billion. In case anybody is noticing that is 2 Billion MORE THAN the cost of the ethanol excise tax credit cost in 2010 (which will be going away entirely in 2011 – and would have disappeared in a couple of years as a matter of course anyway).

    * Note that almost all the ethanol burned in automobiles in the U.S. is a 10% blend or less – NOT 85%. This is important in terms of GHG reductions – but the details of this might be a bit off-putting to many readers. Suffice it to say that the GHG reduction estimates for E85 do not apply to E10 and less. E10 achieves better GHG reduction numbers than 85% ethanol.

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  8. 8. Bill_H 8:39 pm 10/13/2011

    Please note a typo in my previous comment.

    the percentage of the fleet you would need to be Priuses is 11% (eleven percent). my apologies for any confusion.

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