Friday, November 18, 2011

Corn Heist

The wisdom of diverting high protein food to the production of transportation fuel has always eluded me.  Several years ago I found myself a lone voice questioning corn-based ethanol.  Even after several studies that demonstrate the inefficiencies of ethanol production in general and corn-based ethanol in particular, we are still shoveling corn into our gas tanks.

The Agriculture Marketing Resource Center estimates that approximately 40% of the 2011-2012 corn crop will be used for ethanol production.  Total supply, including imports is projected to range from 13.4 billion bushels to 13.9 billion bushels.  That is an impressive number and at first might appear large enough to accommodate fuel production.

That impression would be wrong.  Total acreage devoted to corn has grown over the last five years, from around 78 million acres in 2006 to an estimated 92 million in this coming planting season  -  19% increase.  This increase came primarily from the shift fields to corn from soybeans and the removal of acreage from fallow or conservation programs.  Yields per acre have improved slightly from 149.1 bushels per acre in 2006 to 152.8 bushels per acre in 2010  -  2.5% increase. 

Thus between added acreage and increased productively corn production increased by just over 20%.  The rest of the corn used by ethanol has been purloined directly from the kitchen pantry.  In a world where famine and hunger are common, one might even consider the use of food for fuel as immoral.  At the very least it is just dumb.

Do not expect any changes in ethanol policy any time soon.  Congress has shown an uncanny ability to quell reason with politics.  The farm lobby offers too much in the way of political and financial support for Midwestern politicians in particular.  There are few alternatives.  The use of waste cooking oil and other animal fats also encroaches into the food supply chain, although not as egregiously as the corn heist described above.  As beguiling as algae oil-based fuels might be, there appears to be much more development work to be done to make this feedstock a reliable source for transport fuel.   

Enjoy your next breakfast corn muffin.  It may be the last one you eat.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

No comments: