Food as Fuel

NCPA August 9, 2012

Every day that the drought continues garroting the American Midwest, the lunacy of turning corn into motor fuel becomes ever more obvious and ever more outrageous, says Robert Bryce, a senior fellow at the Manhattan Institute.

• Over the past six weeks, corn prices have soared by about 50 percent.
• They recently hit $8.20 per bushel, an all-time high.

Several factors are influencing grain prices, among them the reduced amount of grain available in storage and increased meat consumption in the developing world. But there is no doubt that the corn ethanol mandates imposed by Congress are distorting the market, which will mean higher prices for everything from milk to cheeseburgers.

• This year, about 4.3 billion bushels of corn will be converted into motor fuel, according to Bill Lapp, president of Advanced Economic Solutions, an Omaha-based commodity consulting firm.
• That means that nearly 37 percent of this year's corn crop, which Lapp estimates to amount to about 11.6 billion bushels, will be diverted into ethanol production.

Compare those numbers to those of 2005, when corn was selling for just $2 per bushel. That year, 1.6 billion bushels of corn -- or about 13 percent of domestic corn production -- was distilled into ethanol.

But to fully understand why prices for grain-intensive foods are soaring, consider this fact: America's corn ethanol sector now consumes about as much grain as all of the country's livestock.

• Lapp estimates that this year, 4.6 billion bushels of corn will be used for livestock feed.
• That's approximately equal to the 4.3 billion bushels that will be used for corn ethanol production.
• Thus, American motorists are now burning about as much corn in their cars as is fed to all of the country's chickens, turkeys, cattle, pigs and fish combined.

Despite all this, the Environmental Protection Agency (EPA) is bending over backward to accommodate the ethanol industry, which is now producing too much fuel.

• Gasoline containing 10 percent ethanol, or E10, has been sold for many years.
• But with too much ethanol on its hands, the ethanol industry launched an intensive lobby campaign at the EPA to convince the agency to increase the permissible blend to 15 percent, or E15.
• The agency gave final approval to the move to E15 last month even though only about 4 percent of all the motor vehicles in the United States are designed to burn fuel containing that much ethanol.

Source: Robert Bryce, "Food as Fuel," Slate, July 31, 2012.