Monday - July 18, 2011

Gas Too Costly? Blame The Weather

Ethanol futures climbed to the highest price in more than three years in Chicago as a heat wave blanketing the Midwest threatens the corn crop.

The grain-based additive gained as temperatures reaching 100 degrees Fahrenheit (37.8 Celsius) move across the corn-rich U.S. Midwest. Ethanol is made mostly from corn in the U.S., with one bushel making at least 2.75 gallons.

“It certainly is related to the grain market,” said Rich Nelson, director of research at Allendale Inc. in McHenry, Illinois. “Though corn didn’t close at its highs, people are expecting higher prices due to the heat right now. The way ethanol is priced, which is off of corn, the two are directly tied together.”

Denatured ethanol for August delivery gained 3.6 cents, or 1.3 percent, to settle at $2.873 a gallon on the Chicago Board of Trade, the highest price since June 27, 2008. Futures have gained 78 percent in the past year.
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On a spot basis, an average ethanol mill in Iowa is making 20 cents on every gallon of the fuel, while a typical plant in Illinois is pocketing 26 cents, according to Ag TraderTalk, a Clive, Iowa-based online grains information service.

More Corn Now Used For Ethanol Than For Food

Amid all the talk of budgets, tax laws, and debt last week, one telling nugget of government data went unnoticed: The Agriculture Department last week estimated that this year, for the first time ever, America will use more corn for ethanol than for any other purpose.

Last week, the USDA published its regular report “World Agricultural Supply and Demand Estimates,” which calculates that in the current corn “marketing year” (September 2010, through the end of August 2011), 11.43 billion bushels of corn will be consumed in the United States. As usual, a small fraction will be used for food or seed: 1.4 billion bushels, or 12.1 percent of the total. Also, as usual, a sizable chunk will be fed to farm animals: 5 billion bushels, or 43.7 percent. But for the first time, the largest chunk will be turned into ethanol: 5.1 billion bushels, or 44.2 percent.

So, the single biggest use of corn in the United States is now highway driving.

Congressmen of both parties are putting on a show of rolling back federal subsidies for this alcohol fuel, but these proposals have the backing of the ethanol industry because they would actually increase taxpayer support for ethanol.

Last month, South Dakota Sen. John Thune, R., and Minnesota Sen. Amy Klobuchar, D., proposed the Ethanol Reform and Deficit Reduction Act. The bill ends the most famous ethanol subsidy, a handout to ethanol blenders called the “Volumetric Ethanol Excise Tax Incentive.” While the government accounting books treat the VEETC as if it were a tax credit against the fuel excise tax, it is really just a transfer payment from the Internal Revenue Service to anyone who blends ethanol with regular gasoline. Blenders simply fill out a form stating how much ethanol they mixed with gasoline last month, send it to the IRS, and then wait for a check amounting to 45 cents per gallon. You can get this credit even if you pay zero excise tax.

Historically, this blender’s subsidy boosted ethanol demand by bringing down the effective price of a gallon of ethanol. But the 2005 energy bill created an ethanol mandate, requiring refiners to use a certain amount of ethanol every year. The 2007 energy bill expanded the mandate, and in 2011, refiners are required to use 13 billion gallons of ethanol. This mandate now sets demand, with the tax credit having little or no effect.

For more on the phony reforms, the false “fuel saving” plans that actually increase demand, etc, read this.




Bad enough, but it still gets worse:

Posted by Drew458     on 07/18/2011 at 09:23 AM   
Filed Under: • Oil, Alternative Energy, and Gas Prices •  
• Comments (0) • Trackbacks(0)  Permalink •  

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