Ethanol To Increase in Price? Most Likely

Updates

August 13, 2012:  data point regarding 2012 corn/ethanol following news of worse corn crop in 17 years:

About 42 percent of the much diminished corn crop this year is expected to go to ethanol, according to the U.S. Department of Agriculture. The USDA Friday said it now sees U.S. ethanol use at 4.5 billion bushels, of the total expected 10.8 billion bushel crop this year. Ethanol is the biggest user of corn, followed by livestock, which is expected to consumer 4.1 billion bushels.

Andrew Lipow, president of Lipow Oil Associates, said ethanol probably added about six cents a gallon to gas prices since the middle of June. In that time, ethanol futures have gone from about $2 a gallon to around $2.60. Ten percent of gasoline is ethanol, and the rise in corn prices has stirred speculation that the Environmental Protection Agency might be encouraged to temporarily drop the mandate.

My hunch: the EPA will make a major announcement to temporarily drop the mandate, but they will do it at the most politically opportune moment. It's a tricky situation: it could cause Iowa to vote for someone other than the incumbent (or not vote at all).

Original Post

Ya gotta love central planning.

And it gets increasingly difficult for me to keep up with data points.

First, this one. I was not aware that back in January they were talking about the price of ethanol increasing due to the end of subsidies; the price increase will contribute slightly to the price of gasoline.

Now this news: China is going to be buying more American corn this year. And it won't be a trivial amount. Well, the article doesn't say that directly but it's not hard to figure this one out. The article was posted just after midnight EST, Thursday, March 8, 2012. It will be interesting to see what corn futures do later today.

Beijing and the influential U.S. agriculture department may have overstated China's corn crop by as much as 14 percent, pointing to higher imports from the world's second-largest consumer of the grain that could squeeze already tightening global supplies.

If China plugs the gap between projected and actual domestic supply with additional corn imports, it would drive up international prices already near four-month highs. Wheat markets could feel the impact too if Beijing snaps up the grain as a substitute to corn for animal feed.

Interestingly, this was posted "yesterday," March 7, 2012:

Corn also slumped on speculation that China, the world’s biggest consumer of the commodity, will reduce imports of the grain and boost planting to feed expanding hog herds and chicken flocks, said Rich Nelson, the director of research for Allendale Inc. in McHenry, Illinois.

So, the perfect storm continues. Not only is crude oil increasing in price, but now ethanol, due to the loss of subsidies, will increase in price. Yup, ya gotta love central planning. BusinessWeek from 2007:

Corn is caught in a tug-of-war between ethanol plants and food, one fo the first signs of a coming agricultural transformation and a global economic shift. Ever since our ancestors in the Fertile Crescent first figured out how to grow grains, crops have been been used mainly to feed people and livestock. But now that's changing in response to the high price of oil (remember, this was written in 2007), the cost in lives and dollars of ensuring a supply of petroleum imports, and limits on climate-warming emissions of fossil fuels.