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Honored Advisor

Re: Ethanol PR

Hardnox...I admire your willingness to walk into the ethanol Temple and point out the obvious to the Sanhedrin here :-)

 

I had a corn farmer tell me that we can easily pay $8 for corn if hogs are $90. He didn't realize that $90 lean was actually $67.50 live. Honest. Everyone has areas where they are ignorant I guess, including me.

 

For us, the calendar says it is time to sell new corn. The market has rallied above your ins deductible as well. All that the bulls have left is hoping for 6 weeks of wet weather to help them really scourge the usage base.

 

At this time, I must make Pritch's point. Betting against the corn farmer getting his corn planted rarely works out in your favor. Most of the midwest is still at least a week away from the ideal planting date starting (4/24 thru 5/7 from the data I have seen). Plenty of time for the weather to change by late month. Timing wise, some things point to a very late April high, so maybe the train rolls along a few days longer.

 

Point being have your plan in place for what will trigger you to sell. Insurance is NOT marketing. You still have to sell it someday. In years after weather induced supply shortfalls the best time to sell is almost never after planting. The time to HARVEST SPECULATORS is at hand. This is not a drill, repeat...this is not a drill :-)

 

btw...the easiest, safest, and most important thing to sell is probably July 2012 wheat for wheat producers, fwiw....

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Re: Ethanol PR

Hi Ken,

 

I agree that insurance isn't marketing. My point has been that revenue insurance is a very valuable backup to sales. It isn't as valuable as "courage calls" because you still have interim margin exposure, but still nice.

 

We are once again at the pretty unusal point where I can take my APH and 75% RA, sell 75% of APH today and be guaranteed not to lose money. Everything over 75% APH is real profit. Costs are based on $240 implied market rent, $35 equipment rplacement, $35 operator return and interest and indirects etc. Run off the U oc I Farmdoc spreadsheet.

 

On the ethanol thing, I think I can stand with the .7% estimate, give or take a percent (maybe negative, maybe a bit more positive.)

 

Of course it doesn't stop the propagandizing but I'll stand by my statement that the problem is that we overpaid our lobbyists. When MTBE failed a windfall fell in our laps and the 9-10 bgy that the Clean Air Act called for would still have been huge for agriculture. The overaggressive push to a very quick 15 bgy has clearly tipped the discussion toward the obvious fact that the cost of the externalities exceeds the benefit- a act that is pretty darn hard to deny at this point.

 

I really don't know why people feel the need to argue for ethanol. We're going to 15 bgy (barring a crop catastrophe) and are probably going to stand pat there. Maybe it is just a matter of not wanting to feel icky about the fact that the largest source of the recent windfall has been a political boondoggle.

 

fwiw, h

 

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Veteran Contributor

Re: Ethanol PR

Hardnox,

 

You crack me up!  You dismiss the graph by Booked showing ethanol production versus oil imports as propaganda, but then you go through machinations and convoluted calculations of energy content and net energy compared to total energy use to make ethanol's contribution look miniscule.  Goebbel's would be proud.  Hey, why didn't you compare world ethanol to world energy use?   I bet you could get that .7% down some more if you tried.

 

I'll take you seriously for a second--you state as follows:

"OK, when we get to 15 bgy ethanol production that will equal about 7% or total transportation fuel. Multiply that by .7 for energy content, multiply it again by .4 for the friendliest net energy estimate you can find and then multiply it by .5 for the percentage of total US energy supply.  You end up with a .7% contribution to our energy needs."

 

 

First of all, let's get the numbers right.  Gasoline consumption in the US is about 140 billion gallons a year.  Ethanol at 15 bgy is nearly 11% of our gasoline supply.  You can discount 15 bgy for lower energy content as a red herring, but miles per gallon are what matters.  Ethanol blends in the 20-30% range have consistently outperformed the expectation of lowered mpg based upon btu's alone.  Over time, as they develop engines that are designed to run on ethanol, the miles per gallon difference could be substantially reduced or eliminated. 

 

Next, you want to reduce ethanol's contribution based upon net energy, but then you compare it to our gross energy use.  Talk about propaganda.  You have not reduced oil, nuclear, coal, natural gas or any other energy source included in total energy use by its net return on energy invested, but that does not stop you from making a false comparison to make ethanol look tiny.  

 

Finally, as you know, we have vast supplies of some energy sources in this country like coal and natural gas, but they cannot be utilized by most cars or trucks.  The form of the energy matters.   All energy is not equal in terms of our economy as currently constructed. 

 

Tell me, did you run the numbers on oil to discount oil for the energy used in pumping water in to get the oil out of the ground, to haul it across vast oceans in gargantuan ships, to process it through billion dollar refineries, to transport it from the gulf to the midwest, and to guard and secure the world's oil supplies with a military that uses energy at a fantastic pace?  Then run the numbers for tar sands and deep water drilling and oil spills in the gulf of mexico, etc. etc. 

 

I don't have a problem with running the numbers as long as you are not just looking at one side of the equation.

 

 

 

 

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Honored Advisor

Re: Ethanol PR

dw...even if we just take your spin on the numbers as accurate, hardbody's point is well taken. It is 1% or so of total energy usage. Yes, it is liquid, meaning it is convenient, and as such should command its own place in the marketplace without big brother required.

 

IF it is such a great fuel source, how about just letting competition work. Why do you need to 1) MANDATE the product, and 2) block imports by tariff, and 3) subsidize the big oil companies who blend it. Making it totally unresponsive to the marketplace and therefor a mere government fiction....errrr a fiction of an insolvent and bankrupt government.

 

We use alot of E85 in the pickups, and obviously E10 everywhere since the feds require it. It is just fair to admit that it is driving up food prices as all other users are not subsidized. Why don't we give the DAIRY guys a subsidy so that they never have to respond to market forces? Milk seems like something we should subsidize to improve childhood nutrition.

Surely, Palooser could see the benefit in the gov mandating usage for food production. Planned economies are far more effecient according to his worldview.

 

Of course, I am no energy policy expert.

 

The other point someone made about this rally being demand driven and not a reduced supply induced one is fiction. Just to remind folks, we had numerous global crop shortfalls in 2010, sa corn/beans, russian wheat, us corn, ausy everything it seemed. What happens to price in the year after a supply driven short-fall is somewhat statistically predictable is all. As is the normal yield response the year following a short-crop, ie record bean crop in sa this year. SO, if acreage goes up, and yields recover, prices will indeed fulfill their statistical tendency, regardless of inelastic demand which is always with us.

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Veteran Contributor

Re: Ethanol PR

Time,

 

I would argue that oil is nearly as unresponsive to the marketplace as ethanol production, but oil is on a much grander scale of subsidization.  This is so because we subsidize oil indirectly by having the US taxpayer pay for a military that goes to war to protect the world's access to oil supplies.  How much less debt would this country have if we had not had to go to war in Kuwait, Iraq, and now Libya.  You have to include not only the cost of the wars, but also the peacetime costs of funding a military that has the capability to take on all comers in the Middle East and around the world.  Putting it more broadly, how many dollars has this nation spent through the years to protect oil supplies throughout the world?  The number is staggering and easily into the multi-trillions, if not tens of trillions.  Add in the US foreign aid to friendly countries in the Middle East that feed our addiction to oil and you can see why the estimates of the true cost of gasoline to the US are more than double and triple the current cost of gasoline at the pump. We are artificially keeping the cost of oil low by assuring its supply from foreign countries.  I haven't even touched on the favorable tax treatment, leasing rights and other direct subsidies to the oil and gas industries.

 

If you are going to subsidize oil to the tune of trillions of dollars, what is the fuss about ethanol's 3-4 billion a year?  Plus you get economic development in the heartland of America as opposed to enriching dictator's in the Middle East.

 

If we don't invest in alternative energy now while oil and gas are still readily available, what happens in 10 or 20 years when another 500 million chinese want to be middle class and oil supplies are going down?  Answer--price shocks to our economy that really sink the future of this country.  The government's role is to think long term and aid the development of alternative energies that smooth the coming energy price shocks.   The market and private industry have demonstrated an inability to make the investments for the long term that we need.  There is too much investment for the here and now and not enough R & D for the future. 

 

Corn ethanol is one small step in the right direction and one which aids getting down the road to cellulosic ethanol.  We need to support alternative energy development on all fronts.

 

We do need a more responsive ethanol policy that adjusts the mandate etc. to the supply of corn.   But right now the fight is not between the reformers and the ethanol lobby, it is between those who want to eliminate ethanol and the those that support ethanol. 

 

What's funny to me is Hardnox basically says ethanol is miniscule, but you certainly would not know that based upon the war being waged by the anti-ethanol forces led by Big Oil.  So, on the one hand, you have ethanol detractors saying its small potatos while the oil industry is going all out to kill it.  If its no threat to big oil as Hardnox believes why does the oil industry spend hundreds of millions each year attacking ethanol?

 

To get to your questions--

 

Why do we need a mandate for ethanol?  Because the oil and gas industry will not allow ethanol access to the market to any significant degree without a mandate.  Why would they create competition?  They are monopolistic and the costs to enter the market are staggering.  The lack of blender pumps and flex fuel vehicles is another impediment for ethanol.

 

Why do we block imports by tariff?  Because otherwise we would be subsidizing the world's production of ethanol which would be chiefly Brazil.  The tariff takes away with one hand what the blender's credit gives with the other hand.

 

Why do we subsidize the big oil companies to blend it?  I'm assuming this was part of Bush's plan to placate the oil industry into playing ball with the ethanol industry.  I could be wrong.  Certainly, it is incentive for oil companies to use ethanol--a competitive product to their own.

 

You say "all other users [of corn] are not subsidized".  Whoa Nellie!  The Dairy industry doesn't receive subsidies?  We do subsidize the dairy industry and also mandate the use of their products like milk and cheese for the school lunch program.  Thanks for bringing that up.  That's just one small example of the other users of corn that are subsidized. 

 

The price of corn has so little to do with the price of food, it is ludicrous to point to ethanol as driving up food costs.  In fact, the price of energy has by far the largest impact on the price of food.   Ethanol has been shown to bring down the cost of gasoline by 25 to 40 cents a gallon, effectively saving the consumers 35 to 50 billion dollars each year. 

 

Make no mistake, Big Oil is not only trying to stop the expansion of ethanol, they are trying to kill it.  They have E15 all but stopped in court.  (Remember market enthusiasts that E15 is not a mandate but merely an allowance of up to 15% ethanol in non-flex fuel vehicles)  They are trying to kill funding for cellulosic ethanol.  They are trying to eliminate grants to aid the installation of blender pumps.  They are trying to eliminate any federal loan guarantees for ethanol pipelines and infrastructure.

 

I would be ok with the blender's credit going away if there were programs in place to aid the market access for ethanol through blender pumps and ethanol infrastructure.  Otherwise, you can harp all you want about the market dictating ethanol's success, but its an illusion if ethanol does not have access to the marketplace.  And if the blender's credit goes away, we do not need a tariff on imported ethanol. 

 

Thus ends my manifesto. 

 

 

 

 

 

 

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Veteran Advisor

Re: Ethanol PR

You say "all other users [of corn] are not subsidized".  Whoa Nellie!  The Dairy industry doesn't receive subsidies?  We do subsidize the dairy industry and also mandate the use of their products like milk and cheese for the school lunch program.  Thanks for bringing that up.  That's just one small example of the other users of corn that are subsidized.

 

That is the freakin funniest thing I have read on here in like forever! DW11 do you do stand up comedy on the side?  WE mandate the use of dairy products in the school lunch program?  Oh really like some little intercity kid must drink at least 16 oz. of milk a day and eat 4 oz. of cheese right? OH yea and we give dairy farmers boat loads of money.  Oh and I forgot all the grocers are getting a blenders credit for making dairy products! I must have missed that part there mister direct payment man! Really don't beat me up justifiying a stupid Gov. policy.

You crack me up!

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Veteran Contributor

Re: Ethanol PR

JR, explain to me how the Dairy industry is not subsidized and your products not mandated for use.  Is CCC buying Coke and Pepsi and margarine to serve at school lunch programs as well as milk and butter?

 

From the National School Lunch act:

 

Likewise, schools participating in the program were required to execute agreements with the State educational agency. These agreements provided principally that the sponsoring agency for the school would:

  1. Serve lunches meeting the minimum nutritional requirements prescribed by the Secretary.

  2. Serve meals without cost or at reduced cost to children who were determined by local school authorities to be unable to pay the full cost of the lunch, and not to segregate or discriminate against such children in anyway.

  3. Operate the program on a non-profit basis.

  4. Utilize as far as practicable the commodities declared by the Secretary to be in abundance and to utilize commodities donated by the Secretary.

  5. Maintain proper records of all receipts and expenditures and submit reports to the State agency as required.

 

Section 9 of the Act provided that "Lunches served by schools participating in the school lunch program under this Act shall meet minimum nutritional requirements prescribed by the Secretary on the basis of tested nutritional research." The Secretary prescribed three types of lunches which would be acceptable, designed as Type A, Type B, and Type C. The Type C lunch consisted of 1/2 pint of whole milk served as a beverage. The milk would have to meet the minimum standards of the State and local laws and ordinances concerning butterfat content and sanitation requirements. The minimum nutritional requirements of the Type A and Type B lunches were as follows:

 

Type A

Type B

Milk, whole

1/2 pint

2 pint

Protein-rich food consisting of any of the following or a combination thereof:

 

 

   -- Fresh or processed meat, poultry meat, 
       cheese, cooked or canned fish

2 oz.

1 oz.

   -- Dry peas or beans or soy beans, cooked

½ cup

¼ cup

   -- Peanut Butter

4 tbsp.

2 tbsp.

   -- Eggs 

1

1/2

Raw, cooked, or canned vegetables or fruits, or both

¾ cup

½ cup

Bread, muffins or hot bread made of whole grain cereal or enriched flour

1 portion

1 portion

Butter or fortified 
margarine

 

 

Authorization to Buy Dairy Products

An amendment to the Food and Agriculture Act of I965 authorized the Secretary of Agriculture "to use funds of the Commodity Credit Corporation to purchase sufficient supplies of dairy products at market prices to meet the requirements of any programs for the schools (other than fluid milk in the case of schools). . . when there are insufficient stocks of dairy products in the hands of Commodity Credit Corporation available for these purposes.” 

 

 

Dairy Price Support Program

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The examples and perspective in this article may not represent a worldwide view of the subject. Please improve this article and discuss the issue on the talk page. (December 2010)

The Dairy Price Support Program is the United States federal program that maintains a minimum farm price for milk used in the manufacture of dairy products. USDA indirectly assures a minimum price for milk by purchasing any cheddar cheese, nonfat dry milk, and butter offered to it by dairy processors at stated prices. These purchase prices are set high enough to enable dairy processors to pay farmers at least the support price for the milk they use in manufacturing these products. The 2002 farm bill (P.L. 107-171, Sec. 1501) mandated a support price of $9.90/cwt, effective through December 31, 2007, when the program by law is scheduled to expire.

 

Also, the farm bill established a Milk Income Loss Contract (MILC) program that makes direct payments to participating dairy farmers whenever the minimum monthly market price for farm milk used for fluid consumption in Boston falls below $16.94 per hundredweight (cwt.). The MILC program has been reauthorized until September 30, 2012.

 

From the Cato Institute:

 

http://www.cato.org/pubs/tbb/tbb_0707_47.pdf

The USDA says that the purpose of milk marketing orders is to "promote orderly milk marketing relationships to ensure adequate supplies of milk and dairy products to meet consumers’ demands at reasonable prices." But it unlikely that dairy products need subsidies and controls to fulfill those goals. After all, the market price system achieves "adequate supplies" at "reasonable prices" without government help for thousands of other products such as automobiles, books, and computers.

 

 

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Veteran Contributor

Re: Ethanol PR

Dw 11

 

Got to give you credit for your support of ethanol!

 

I just don't have the time to help much.Smiley Sad

 

I have more graphs in support but sadly they will just be labled propaganda and be dismissed.Smiley Mad

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Veteran Contributor

Re: Ethanol PR

Booked,

 

 

Thanks for your support of ethanol as well.  If we don't support ethanol, who will after the spin Big Food and Big Oil have put on this issue through hundreds of millions of dollars in advertising and lobbying?   

 

I won't always have the time to take up the argument, but today I chose to do so.  Why should Big Oil and Big Food get a free pass on a farmer orientated website?  They are two Goliaths and we are one David. 

 

 I'd like to see your other graphs on here sometime, too.  Some will always turn a blind eye, but others may see the light. 

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Veteran Contributor

Re: Ethanol PR

Well here is a graph that I find interesting. It shows that oil from crude is using a lot of itself up just getting to the point of use. Now that is not bad in my eyes it is just the way it is to get the stuff out of the ground and to the engine of use. But it points out that crude is not that efficient we just happen to have a lot in the ground and thank GOD for that. Now ethanol is shown to be more efficient and improving but oil is going the other way.

 

img025 (2).jpg

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