US farms that grow corn are mainly located in the Midwest. The Midwest is experiencing a drought that the head agriculture meteorologist with MDA EarthSat say is the worst since 1988. The MDA EarthSat group is estimating a corn yield of about 118 bushels per acre this year. In a good year, the corn yield is about 150 to 160 bushels per acre which suggests that this year’s yield will be about 75% of normal. Shortages always have a way of driving the price of a commodity upward. However making the likelihood of even higher prices for corn is the fact that the ethanol mixed with gasoline is essentially produced from corn.
It is estimated that about 40% of the corn produced last year was used to make ethanol fuel. The refiners are required to use ethanol and most filling stations have a 10%ethanol/90% gasoline blend. Last year 14.2 billion gallons of ethanol were blended with gasoline. By law, in 2012, 15.2 billion gallons of ethanol must be used. Of that total, 13.2 must be from corn ethanol. The remainder must be not corn based. In order to get a better understanding of what is going on, a brief review of the Renewable Fuel Standard will probably be helpful.
In 2005, Congress enacted the Energy Policy Act of 2005. It mandated minimum ethanol use. However, two years later the Energy Independence and Security Act superseded and expanded the Energy Policy Act of 05 and set new, larger use requirements as well as added requirements for cellulosic based ethanol. Cellulosic means from corncobs, wood chips, straw, grass, etc.—by and large almost anything but from the corn kernel (corn starch). These two acts combined are often referred to as Renewable Fuels Standard (RFS2). Further RFS2 set a maximum use level for cornstarch-based ethanol at 15.0 billion gallons. The Environmental Protection Agency(EPA) is responsible for establishing and implementing regulations to ensure that the nation’s transportation fuel supply contains the mandated biofuels volumes.
RENEWABLE FUEL STANDARD 2—BILLIONS OF GALLONS
|YEAR||TOTAL RENEWABLESFUELS||CORN ETHANOL||CELLULOSIC ETHANOL||BIO AND OTHER FUELS|
If you are wondering if the EPA will enforce the law designating mandated minimum use, the following story will be instructive: The 2011 requirement for minimum usage of cellulosic ethanol is 6.6 million gallons.—(See chart above and note 0.0066.) No one is making cellulosic ethanol so there is none available for use. None-the-less, the companies that supply motor fuels are being fined $6 million because they failed to mix cellulosic ethanol into their motor fuels. Go figure.
Corn is a major source of food for humans and it is also it is a major source of animal feed. The price of beef, pork and chicken for example are directly affected by the increase in livestock feed prices. Much has been written about the negative impact of soaring corn prices on the well being of people all over the world.
As noted earlier, ethanol is mandated to be used in gasoline. It is said that the some of the corn used for making ethanol is somewhat different from the corn that normally goes into the food chain. But that corn will also suffer a loss due to the drought making it necessary for the ethanol manufacturers to buy more food corn to supply ethanol to the gasoline suppliers. Thus the fuel chain will be bidding against the food chain for the limited supply of corn.
The commodities markets are showing this now. According to reliable sources, corn that was going for $2.00 a bushel in 2005 when this legislation was enacted now sells for over $8 per bushel. Because ethanol is mandated, the cost of ethanol for blending has little meaning to a gasoline producer as all gasoline producers must use it regardless of cost. The cost of the ethanol will be passed on to the motorists.
Actually, ethanol is not viable economically but only used because of the mandate. It will never be in sufficient supply to be a replacement for gasoline. According to a study reported by Wikipedia, if you are concerned about greenhouse gases, ethanol’s use is a negative: “A team led by Searchinger from Princeton University concluded that once direct and indirect effect of land use changes are considered, both corn and cellulosic ethanol increased carbon emissions as compared to gasoline by 93 and 50 percent respectively.”
The driving force for the use of corn to make ethanol is the votes that politicians get from their farming constituents. The other reasons weigh against using an important food source to make an automobile fuel.