Corn ethanol back in the news

Every time the price of gasoline gets up around $4/gallon, the press heads for the Midwest and starts taking pictures of corn fields and grain elevators.  Forbes gives us an update on the status of ethanol production:  http://www.forbes.com/sites/michelinemaynard/2012/04/11/remember-ethanol-its-actually-bigger-than-ever/.

No surprises here.  During the last bout of high gas prices under the Bush administration, a program was started to mandate that all gasoline to use at least 10% ethanol.  That mandate provided a floor for ethanol production so that it wouldn’t completely die out when gasoline prices came back down.  However, now that gas prices have gone back up, a gallon of E85 (85% ethanol, 15% gasoline) is actually 15% cheaper than a gallon of regular unleaded in many locations (see http://e85prices.com/ — whatever happened to all the flex-fuel vehicles that auto makers said they would be rolling out a few years ago?)

Calculating true cost of a gallon of corn ethanol is nearly impossible.  In fact, it’s nearly as difficult as determining the true cost of a gallon of gasoline.  Ethanol has corn subsidies and refining subsidies that obfuscate the true cost.  The cost of subsidies to Big Oil, military actions needed to provide security to oil-producers and shipping lanes, and the manipulation of the price by speculators keep the true cost of gasoline hidden in congressional budgets and commodity markets.  But with the current artificial price supports in place for each energy source, we’ve seen a trend over the last several years.  If gasoline prices go above $3.50, ethanol starts becoming an attractive option price-wise — even taking into account the reduced MPGs most flex-fuel vehicles have when running on E85.  And thus all the upcoming stories about corn ethanol.  I’m sure we’ll also be dusting off stories about cellulosic ethanol, and the press will be heading out to the prairies to take some photos of switch grass at sunset  (see http://on.wsj.com/HMaTwx).

Another disturbing trend that makes it hard to calculate the cost of corn  is the effect it has on food prices.  I’m not an economist, but I wonder how concerned we should be that 40% of the corn supply is now being used for fuel, not human food or animal feed.

About Elton Conrady, Technical Editor

Elton Conrady is Technical Editor at Media Rostra. As a network engineer, Elton has worked in traditional telecom, wireless, state government, and DoD environments. While engineers are considered dull or nerdy in some social circles, Elton has attempted to be an interesting person -- he has played on a barnstorming basketball team in Europe, worked as a commercial fisherman off Kodiak Island, and lived in Croatia for 4 years. Now that he is "grown up", Elton spends his spare time fishing, camping, and hiking.