Uncle Sam, King Corn, and the Renewable Fuel Mandate

This summer has been warmer than average.  Midwesterners are known for having to tolerate all kinds of weather, but this summer has been unique due to the severe drought.  One of the hardest-hit commodities, corn, plays a critical role in our food supply, and now, even more so in our pocket books.

I am a city gal who grew up in a small farming community in Minnesota and when I dial back home, many farmers are in fear wondering how long last year’s corn yields will last due to this summer’s brutal drought.  This year’s crop yield is on track to be the worst in 15 years, and corn prices have already hit record high levels.  The drought has destroyed one-sixth of the country’s expected corn crop for the past month.[1]

Abusing Bureaucracy

Did you know that Congress is on the brink of passing a “pork”-filled farm bill? A farm bill is legislation used to shape America’s farm and food policy.  In the current bill, bureaucracy and special interests are sneaking in disguised as representing the best interest of farmers, but in reality this one is not a farm bill for the farmers after all. If this farm legislation is passed, the real drought will be forced on taxpayers with a trillion dollars worth of bad agriculture policy, while locking in increased food stamp spending.[2] 

That’s right, food stamp spending. Did you know that 80% of the current proposed farm bill is made up of entitlement spending on food stamps?  I do not see how this helps the farmers, drought or not!  With government dependence at an all time high – nearly 45 million people on food stamps[3] – this “farm” (food stamp) legislation will not help any American citizens.

Taxpayers cannot afford an expansion of federal government’s role in the business decisions of agricultural enterprises.  As a small business owner, I can’t imagine being encouraged to engage in expansion or risk in this economic climate, and then expect the taxpayers to bail me out if I fail.  This is “Kleptonomics”—not True Capitalism.

Enter The Renewable Fuel Standard

The EPA is now responsible for ensuring that transportation fuel contains a minimum volume of renewable fuel.[4] President Bush signed a Renewable Fuel Standard (RFS) mandate with the Energy Policy Act in 2005.[5]  This RFS was expanded in 2007 in the Energy Independence and Security Act.[6] The expansion was an effort to reduce dependence on foreign oil, promote biofuel use, stabilize transportation fuel prices, and reduce greenhouse emissions, among other goals. The mandate requires “that increasing amounts of biofuel – 36 billion gallons by 2022 – be blended into transportation fuel.”[7]

Government Creating Value… Corn for Cars

Ethanol (ethyl alcohol) is a renewable energy biofuel often used as an additive for gasoline. The ethanol movement has been glorified and positioned as “greener” – a way to reduce greenhouse gas emissions and reduce our use of imported oil.  This is foolish considering the amount of land used and energy consumed growing and processing biofuel crops.[8]  Furthermore, scientific research suggests that some corn-based ethanol production may actually increase carbon dioxide emissions rather than reduce them.

According to a study published in Science by the Nature Conservancy and the University of Minnesota, many biofuels emit more greenhouse gases than gasoline. According to the researchers, the production of some biofuels may produce “17 to 420 times more carbon dioxide than the annual greenhouse gas reductions that these biofuels would provide by displacing fossil fuels.”[9]

Let’s be clear on the renewable fuel standard – nearly 40 percent of the corn harvest is consumed by making ethanol[10] to meet Obama’s “green” strategy and to win votes.  Once again, the taxpayer suffers in the form of higher grocery bills and our tax dollars going to questionable subsidies.

Another Layer Wrapped in Green Red Tape

The ethanol industry claims that the Renewable Fuel Standard minimally impacts corn and feed prices.[11]  Livestock producers claim just the opposite, as their feed-corn cost increases are rampant due to the drought and the mandated diversion of corn to ethanol production. These livestock producers are asking the hand of the EPA and Government to unlock and immediately consider waiving the RFS ethanol mandate to help ease the pressure it is placing on the feed corn they must purchase, and to help reduce costs that are passed on to consumers when costs go up for livestock farmers.[12]

Taxing Refiners and What These Programs Are Costing You

Pressuring the biofuel market, EPA renewable fuel standard is forcing refiners to pay a fine for not achieving cellulosic ethanol targets even though this type of ethanol is currently unavailable.[13]

Refiners were required to pay about $6.8 million in penalties for not blending cellulosic ethanol into gasoline in 2011.  How absurd, given cellulosic ethanol does not currently exist on the market. And it doesn’t stop there; the EPA has mandated that refiners blend even more cellulosic ethanol – 8.65 million gallons – into gasoline and diesel in 2012 or pay the EPA millions of dollars in fines.[14]

Who picks up the rewards of this bureaucratic punishment?  The EPA wins this one by setting an unrealistic requirement, and then bringing in money through the fines it demands.

So ethanol mandate is one more bad idea – government manipulation “run amok” – that benefits politicians and corn growers but does little of value for you or I, the consumers and customers.

Shucked Corn Trade

One of my clients works with Minneapolis based Cargill, a global grain-trading powerhouse.  She has been predicting unbalanced trade in corn import/export for some time, as her global co-workers joined the chorus that the U.S. government should temporarily curb its ethanol quotas. To make the trade situation worse for the U.S., our agricultural companies are importing corn from Brazil for the first time.[15]  This greatly hurts America’s position in global trade.

“Countries such as Japan, Korea and Taiwan are looking elsewhere for new [corn] suppliers because of skyrocketing prices and tight supply. America exports 50 million tons of corn – 15% of its crop – and Japan is America’s top buyer, importing 14 million tons, followed by Mexico, Korea, Egypt and Taiwan.”[16]  Now, between the drought and the ethanol mandate, these countries will have no choice but to turn to other corn producers such as Brazil, South Africa, China and Argentina to get their corn.

“[Cargil]l CEO Gregory Page said on CNBC that the U.S. biofuel mandate ‘needs to be addressed’ through existing policy tools, becoming the highest-profile executive to call for some relief from the Renewable Fuels Standard that requires that over a third of the corn crop is made into fuel ethanol.”[17]

When will our government stop trying to pick winners and losers?  Much like the alignment with Solyndra and other green companies, Obama is in the business of propping up the democratic vote by joining King Corn in a struggling economy.

From Burnt Corn Field to Level Playing Field

Congress needs to put agriculture and energy on a level playing field by killing unnecessary subsidies and backdoor regulatory mandates, while the Farm Bill needs to be “SNAPED” in half to remove it’s 80% earmark for the Supplemental Nutrition Assistance Program (SNAP) – the new name for food stamps.

We have a summer storm of invested political interests, the most severe drought since the 1930’s, shifting U.S. trade balances, and unnecessary mandated restrictions when it’s clear the nation’s corn crop is in a state of crisis.  Corn prices have gone from about $2 a bushel in 2005, when the first ethanol mandates were put into place, to a drought-induced $8 today.[18]

Obama’s energy agenda is the same as the Global Warmists: drive down the use of petroleum-based fuels by making them more expensive. This, however, raises the cost of living for all of us and is too much for our economy to bear.

Crisis or not, the market cannot work when big government mandates are in place. That’s what we call “Washington Inc.” and it is a manipulation of the markets.  We cannot stand for this bureaucracy as congress is ramping up to finish out the year and Obama plays more “executive order.”

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