The stock market is a glorified casino, and I'm no betting man. Plus I'm broke. But if I were flush and even a bit of a gambler, I'd be buying up shares in ethanol companies and corporations that sell inputs to corn farmers.
Why? Because every U.S. politician who matters seems determined to engineer conditions that will make corn-based ethanol production triple over the next several years, reaching what most people consider its maximum of 15 billion gallons.
The House and the Senate are divided over the energy bill, but both chambers have signed off on one aspect: a mandate requiring 36 billion gallons of "renewable fuel" by 2022, of which 15 billion can be corn-based ethanol.
And corn will surely reach that maximum. Given that cellulosic ethanol remains at least 10 years away from feasibility, no serious person expects it to contribute to RFS compliance any time soon.
And if Congress fails to enact the RFS -- say, if the energy bill stays bogged down -- the Bush administration has reportedly promised the grain-trading industry that it would declare an accelerated renewable fuels mandate by executive fiat.
The excellent blog Farm Policy, quoting subscription-only agriculture-news service DTN, reported that Bush has promised to issue guidelines through the EPA mandating use of 35 billion gallons of "renewable fuel" within 10 years (making the deadline 2018, as opposed to 2022). According to DTN, the edict is drafted and ready to drop as early as Jan. 1, depending on how things go in Congress.
The plan reportedly emerged at the annual meeting of the National Grain and Feed Association (read: ADM, Cargill, and other big grain trader/ethanol makers) in Chicago.
Oh dear. Let's leave aside, for now, the monumental cynicism of using the EPA as the instrument for securing an ethanol market. For now, let's look at how the stock market's been handing the latest episode of our political class' love for ethanol.
Archer Daniels Midland's share price floundered from late summer to mid fall, when everyone was talking about the ethanol glut. But with a robust RFS looking like a sure thing, ADM stock is surging, up nearly 20 percent from its August low.
Monsanto, which owns most of the GM seed traits farmers rely to fulfill the RFS, has boomed. As recently as June, Monsanto stock was trading at $60 per share. Today, it's going for nearly $110 -- a cool 80 percent gain in less than a half a year. A big chunk of that gain has come since mid-November, when a robust RFS started to seem imminent.
Okay, this is getting obscene. Let's just say that the rentier class is very, very happy with the prospect of government ethanol mandates.
Should the rest of us be?
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Comments
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Tasermons Partner Posted 12:54 am
12 Dec 2007
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odograph Posted 1:14 am
12 Dec 2007
We'll try corn ethanol for a while, but I think we'll figure out the downsides after a time.
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Ron Steenblik Posted 1:19 am
12 Dec 2007
By the way, one of the stories on FarmPolicy.com (sent to me by e-mail) contains the following quote:
"People at EPA think it's crazy to mandate such a large volume of renewable fuels," Mike Leister, fuels technology manager for Marathon Petroleum Co. in Findlay, Ohio, told DTN.
I guess we should be grateful to learn that there are still sensible people working for the EPA. Unfortunately, those that make the policies have their own agendas.
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Ron Steenblik Posted 1:33 am
12 Dec 2007
You say, "We'll try corn ethanol for a while, but I think we'll figure out the downsides after a time." WE (that is to say, ADM and their political friends) have been trying corn ethanol for almost 30 years now. And once a big mandate is established, how do you see it being unravelled? Mandates are forever, and the only way out of them is to make a massive pay-off to the industry.
Moreover, even if the government succeeds in keeping production of ethanol from corn starch to 15 billion gallons a year, corn will not disappear from the scene. Ethanol from other parts of the corn plant, and sweet sorghum (also a crop with soil-erosion problems, albeit less demanding of nitrogen fertilizer), will qualify as "advanced" biofuels.
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Ron Steenblik Posted 2:07 am
12 Dec 2007
This is not a case of unintended consequences. A new generation of "cellulosic" fuels (made from grasses, crop residue or wood chips) might deliver benefits, but the adverse effects of corn-based ethanol were widely anticipated. Government subsidies reflect the careless and cynical manipulation of worthy public goals for selfish ends. That the new farm bill [sic]may expand the ethanol mandates confirms an old lesson: Having embraced a giveaway, politicians cannot stop it, no matter how dubious.
To anybody who maintains that we need not worry, and who believes that Congress will wake up and smell the coffee and reverse the RFS (next year, the year after that?), I ask them to describe how that is going to happen. To repeat: "Having embraced a giveaway, politicians cannot stop it, no matter how dubious."
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odograph Posted 2:32 am
12 Dec 2007
I am (as I was once accused) an optimist who thinks he is a pessimist on this one?
I really expect higher food prices to sink in, or a light bulb to go on, when the shopping moms connect higher grocery prices to ethanol policy.
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amazingdrx Posted 3:23 am
12 Dec 2007
Too late now, unless you short them. But even those short positions were best 6 months ago as ethanol profits went from 3 bucks per gallon to only 25 cents per gallon. A glut of ethanol and no way to mix it into the gas supply fast enough was the culprit.
Maybe taking long positions in plugin battery electric car equipment makers would be a good idea for the next big boom. But it might take a year or two to develop.
When consumers start seeing the audi plugin and maybe even the volt, they are going to want one too. How fast will it ramp up? How fast did Prius sales ramp up? These plugins will actually save enough gas to be worth the financial investment to family economics too.
Unlike the Prius, it has a longer payback,less fuel saved, feel good green, but not green as in more cash. The plugins will improve your cash flow, by maybe 1000 bucks per year on average.
http://amazngdrx.blogharbor.com/blog
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traveler255 Posted 3:35 am
12 Dec 2007
Never stop using your brain!
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Delay And Deny Posted 3:36 am
12 Dec 2007
http://www.marketwatch.com/news/story/exxon-proposes-floa ...
Exxon Mobil Corp. announced late Tuesday that it's proposing a $1 billion, floating liquid natural-gas terminal located 20 miles off the coast of New Jersey.
The company is calling it a way around the often-crippling "not in my backyard" opposition facing the development of energy infrastructure in the United States.
"The floating ocean terminal will not be visible from the shoreline" it said on a Web site for the project, called BlueOcean Energy.
My Log
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justlou Posted 3:39 am
12 Dec 2007
The amount would surpass over half of US corn crop in 4 of the last 6 years and over 40% of the 2007 production boosted by a substantial increase in acreage. We saw big jumps in food prices this year when ethanol was set to take about 25% of the crop. So what can we expect in the future when ethanol takes 50% or more? More importantly, what severe effects might we see if corn production falls as it regularly does in the corn belt?
Agricultural economists give us a good window on future corn production scenarios. One, that I cited in an earlier post can be read at:
2007 U.S CORN PRODUCTION RISKS: WHAT DOES HISTORY TEACH US?
http://www.farmdoc.uiuc.edu/marketing/mobr/mobr_07-01/mob ... ...
My earlier comments containing excerpts from this study are in the thread at the tail of:
http://gristmill.grist.org/story/2007/12/6/162114/094
One noteworthy excerpt:
An important public policy question, then, is, with an extreme shortfall in production, would the market be allowed to allocate the crop among users or would such a shortfall in corn production induce government intervention? The norm from past experience with rationing has been to allow the market to allocate the crop, with the largest adjustments taking place in the livestock sector. However, there has been one exception. Short supplies and high soybean prices in 1973 resulted in an embargo on U.S. exports. Such an embargo on corn exports might be considered following a large shortfall in production, but the potential negative impact on longer-term trade relationships would make an embargo a very unpopular alternative. The financial implications of high corn prices for livestock producers might evoke intervention in the allocation of supplies between domestic livestock producers and processors of corn.
In Bush's last year look out for all kinds of rule writing that work against our interests. The foxes are prowling and Bush and his agency cronies are holding the hen house door wide open. Are feathers hanging from Congress' mouth?
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