The price of corn is at all all-time high because of extreme drought conditions in the US coupled with the hottest July temperatures since records began 117 years ago.
US policy mandates production of ethanol for blending in gasoline. That ethanol comes mostly from corn.
Diverting corn crops to inefficient ethanol production has members of the Group of 20 leading economies – including France, India and China – concerned about the US ethanol policy.
In response, the UN urges US to cut ethanol production
The US is poised to divert around 40 per cent of its corn into ethanol because of the Congress-enacted mandate despite “huge damage” to the crop because of the worst drought in at least half a century, José Graziano da Silva, director-general of the UN’s Food and Agriculture Organisation, warned.
“An immediate, temporary suspension of that [ethanol] mandate would give some respite to the market and allow more of the crop to be channelled towards food and feed uses,” he wrote in an opinion piece in the Financial Times.
Tom Vilsack, US agriculture secretary, raised doubts about the impact of waiving the ethanol mandate, arguing that the US biofuel industry had reduced petrol prices and created jobs.
The question at hand is whether the US agriculture secretary is an economic dimwit, a shill for the Obama administration, a shill for corn producers, or some combination thereof.
The US biofuel industry certainly has not reduced the price of gasoline. Tariffs on imported ethanol have kept the price of ethanol artificially high (but they did expire in December).
Fundamentally, government policies do not create job, they cost jobs. The best way to create jobs is for government to get the hell out of the way and let the free market work.
I do not know how much corn prices would drop if the US ended its inane biofuel policies. What I do know is government interventions and government-sponsored solutions never do any good.
Romney an Energy Pretzel
Which is worse? Being consistently wrong, or blowing so much in the wind voters haven't a clue what you stand for?
Before deciding, please consider Mitt Romney, the pretzel candidate by George Will (written October 28, 2011).
Obama, a floundering naif who thinks ATMs aggravate unemployment, is bewildered by a national tragedy of shattered dreams, decaying workforce skills and forgone wealth creation.
Romney cannot enunciate a defensible, or even decipherable, ethanol policy.
Life poses difficult choices, but not about ethanol. Government subsidizes ethanol production, imposes tariffs to protect manufacturers of it and mandates the use of it — and it injures the nation’s and the world’s economic, environmental, and social (it raises food prices) well-being.
In May, in corn-growing Iowa, Romney said, “I support” — present tense — “the subsidy of ethanol.” And: “I believe ethanol is an important part of our energy solution for this country.” But in October he told Iowans he is “a business guy,” so as president he would review this bipartisan — the last Republican president was an ethanol enthusiast — folly.
Romney said that he once favored (past tense) subsidies to get the ethanol industry “on its feet.” But Romney added, “I’ve indicated I didn’t think the subsidy had to go on forever.”
Ethanol subsidies expire in December, but “I might have looked at more of a decline over time” because of “the importance of ethanol as a domestic fuel.” Besides, “ethanol is part of national security.” However, “I don’t want to say” I will propose new subsidies. Still, ethanol has “become an important source of amplifying our energy capacity.” Anyway, ethanol should “continue to have prospects of growing its share of” transportation fuels.
Mike "Mish" Shedlock