US Crop Issues to Have Domino Effect, Ethanol Debate Likely to Accelerate


The critics of U.S. ethanol production have been coming from all directions these days, and news of the most disappointing corn crop yields in decades, some 25% below normal, should only push the conversation forward. And it doesn’t help that the predicted output reduction by the U.S. Dept. of Agriculture was even worse than market-watchers anticipated thanks largely to the relentless drought conditions in Central and Midwestern regions of the country.  

In a daily business news roundup prepared daily by NACM Economist Chris Kuehl, he penned the following:  
This sector has always been controversial, and there are more than a few in the U.S. who would love to see that industry fade away. There are also many supporters who still believe that the U.S. needs the alternative fuel it helps generate as a means to cope with issues like energy dependence and global warming. The crux of the issue now is that corn is in very short supply worldwide and a major food crisis looms. Not only has the U.S. corn crop been wiped out by drought, but the Brazilians are not going to get the yields they had expected either because of too much rain there. As corn prices reach $10 a bushel (and there already in striking distance), the threat of famine grows, and it doesn’t seem like a good idea to be subsidizing an industry that consumes 25% of the corn produced in the U.S. annually.

Analysis: The price of corn is so high that no ethanol plant can remain profitable without direct help from the government and, thus far, that is still being provided or even expanded. The United Nations has joined with U.S. livestock producers to call for an end to these breaks and essentially an end to production of corn-based ethanol. The long-term goal was to produce ethanol with something else—switch grass, sugar cane, algae—anything but the food that cows eat. The impetus to make that change may be more intense in the months and years ahead.
 

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