…but then why draw out the agony? Suffice to say that the reason corn prices are so high is because of a bill passed last year by Congress mandating that the government purchase seven and a half billion gallons of ethanol by, I think, 2009. That’s a lot, but then there’s new legislation that’s up to require the Federal government to purchase even more. On the one hand the free-market lover in me is horrified. On the other some farmers that are near and dear to me are finally making a decent living.
The upshot of the situation…well, you’ve heard it on the news. Because we live in a global economy, buyers looking for corn have been snapping it up in other countries. In Mexico, the result has been a sharp price increase, which is making it harder for poor Mexicans to afford tortillas. It’s a shame, though the same people who are angry at high corn prices this year were incensed by low corn prices two years ago, which they said were a conspiracy to keep Latin American farmers poor. Who knew the laws of supply and demand were so complicated?
Here in the US the ethanol craze has caused a flurry of activity, and not just in corn farming. Ethanol refineries are popping up everywhere to service the demand, which I suppose is a good thing (we haven’t built a new OIL refinery in America in 30 years, part of the reason gas prices are so high). But then the market demand — because it’s the government that’s buying — is a really only an illusion. Can the government-sponsored ethanol bubble last? Maybe it can. All that ethanol will have to go somewhere, so the bill may end up spurring an ongoing demand for cleaner burning fuels. Which would be very, very good.
But here’s the problem with ethanol: for every eight gallons we make, we burn seven gallons of oil. Add to that the fact that ethanol yields a third less energy per gallon compared to gasoline, and there’s not a heck of a lot of advantage to it, economically or environmentally. I think the thinking is that every major transition is difficult and inefficient, and that the benefits will become clearer with time. I certainly hope so, because we’ll all be paying more for anything that consumers corn now that Uncle Sam has entered the fuel business.