on ethanol

[hardnox604008]

The key flaw in the ETOH scheme was always a seemingly samll thing hidden in the details- the testimony and resulting belief that due to an "accelerating yield trend" we'd be popping off 170 national yields regularly by now.

I'm sure that Barney Frank and Nancy Pelosi thought those nice men from the NCGA must surely know what they were talking about (thought you'd like that).

Potential was there, probably, weather never did really cooperate. And you can also argue that the Titanic was a sound project if it hadn't been for an unusual warm current that calved off an unusual iceberg.

Or, alternately you can look at it like some revisionist engineering historians have- that the Titanic disaster probably saved lives becasue engineers were heading in the wrong direction- in a race to build bigger, faster, less safe and if the Titanic had been luckier it would have just meant that a bigger ship would have gone down sometime in the future.

So there seems to be an opportunity here to learn from the unequivocal failures of this particular policy and build a more robust food system. However I'm not optimisitic that we'll even get the first few steps beyond the "foodfight" of narrow self interest, mutual mistrust and money politics.

[k-289]

Nox--good points - for the sake of cards on the table the ethanol wasn't a political grandstand for only one party  - kind of refreshing the gush to adjourn this week in Washington --- the only bi-partisan thing done ---

[Jim Meade / Iowa City]

Ag economists are saying that even if the ethanol mandate is relaxed, it may not have a big effect on corn prices.  U/Ill and ISU.

http://www.farmdocdaily.illinois.edu/2012/08/ethanoldoes_the_rfs_matter.html

"Conclusions

The EPA does not necessarily have the ability to substantially ease the plight of livestock producers in 2012-13 at the stroke of a pen. Waiving the RFS mandate for ethanol may have a smaller impact on the price of corn or the quantity of corn available for feed than many expect. This conclusion is consistent with a recent Iowa State University study that estimated the price of corn would drop an average of only 28 cents across a range of corn yield outcomes due to a full waiver of the mandate. Without large changes in the economic incentives to blend ethanol with conventional gasoline, at least in theory, the price of corn and availability of corn for feed may be unaffected. If so, other policy options to aid the domestic U.S. livestock sector in 2012-13 might be considered, including direct payments, corn export restrictions, or quotas on ethanol or other corn processing uses. None of these options seems particularly attractive from either a practical or political standpoint.

It is important to emphasize that it is not our intention to give the impression that the RFS mandates have not had any impact on the corn and ethanol markets. Our view is that the mandates were a significant factor in building out the U.S. ethanol industry to its present capacity. However, once the capacity was put in place reversing the mandates will not necessarily reduce ethanol production and blending due to the adjustments made by the gasoline refining industry."

[vrbuck]

A whatever study.

[hardnox604008]

I wouldn't disagree with their conclusion.

Now that government policy has directed a not insubstantial amount of finite national capital  into ethanol infrastucture-and there are some modest benefits-  we might as well use it- hopefully wisely.

Going forward, ethanol policy should have some more transparent mechanism for countercyclical elasticity.

Lacking that, might as well just go quickly to the default option which is that each pig squeals as loud as they can- and hopefully we then blow up the whole system so that we can start over.

[Palouser]

Excelent questions and observations.

[DW11]

Nox,  I don't think formulating policy based upon a once in 50 year event is going to result in good policy for the other 49 years.   We did not have to have a 170 yield this year or any previous year to satisfy all the demand sectors.  A below trend 155bpa  would have been more than sufficient given the acres farmers planted.  The drought is a catostrophic outlier. 

But to return to realty, noone is going to starve because of the drought even under our current system.  People will starve in the world, no doubt, but they will do so with or without ethanol and in times of abundance and in times of drought. 

Have you thought about the fact that ethanol raising grain prices has pumped billions into R&D for better genetics, better production practices, better machinery, which combined makes us better able to produce the big crops that people are/will demand in the future.  The world had crop failures in the LDP days and in the days without ethanol which resulted in shortages.  The only way to better avert shortages is to have a grain reserve which the govt. would have to pay for because the market won't.  Or couldn't the end-user actually pay to store extra food for the proverbial non-rainy day? 

[idalivered]

good one, nox! "transparent mechanism for countercycical elasticity"? I love reading your stuff.

[hardnox604008]

Point being that ETOH is much too blunt of a weapon to be used as the primary price support tool.

What you are in effect saying is that we have to stay balanced on the edge of boom and bust constantly in order to ensure that current costs of production are exceeded.

[kraft-t]

Yeah! It is fun to see a wordsmith in action. Lol