The Comstock Report


David Kruse
President, Comstock Investments
Copyright 2010@ CommStock Investments, Inc., David Kruse

Whenever corn prices rise, we need to hand another dry crying towel to the NPPC, NCBA and AMI as their tears will flow freely as they decry the injustices of ethanol, portrayed as the source of all livestock industry ills. Actually, they will claim to support ethanol, just not ethanol subsidies.

If ethanol was not subsidized, they claim their opposition would relent. That means that the focus of their disgruntlement was with government subsidy’s alleged distortion of corn demand.

They are ideologically opposed to subsidies. That’s their spin. The truth is, they don’t like anything that raises corn prices. They want cheap feed. The subsidies are irrelevant because they did not oppose farm subsidies that kept farmers growing corn that sold for market prices that were below the cost of production. You never heard a peep out of livestock organizations when the government was directly subsidizing corn production, indirectly benefiting livestock producers with cheap feed.

Livestock producer ideology only surfaced when the government subsidies to ethanol production indirectly boosted the price of corn and subsequently, feed costs. To me, that means livestock producers complaining about ethanol subsidies are just hypocrites who believe they somehow have a right to cheap feed.

China has been buying corn and subsidizes its domestic corn prices trading there above $8.50/bushel, so that U.S. corn imports are economically possible. Livestock producers should be railing about Chinese subsidies, but you haven’t heard a word from them on the subject. Chinese subsidies raising corn prices are okay, but ethanol subsidies reducing our dependence on foreign oil are not?

Livestock groups promote the myth that ethanol is subsidized, while oil production is not. A DTN investigation produced a months long study that concluded that while exclusive ethanol subsidies total $7.1 billion annually, the oil industry gets $17.9 billion. That doesn’t include the share of military spending to protect the Persian Gulf that a University of California Davis study estimated to range from $6.9 bln-$28.8 billion annually as an indirect subsidy to the oil industry.

DTN wrote, “In the eternal mudslinging between supporters and opponents of biofuels, subsidies are one of the opponents’ biggest and most painful mud balls. If ethanol is such a good idea, why does it need government help? Supporters retort that the oil industry is subsidized too, but that argument often doesn’t seem to win much respect. It should. The oil industry receives substantial amounts of taxpayer support – by some definitions significantly more than ethanol.”

Another CIA study shows that 4 cents of every dollar that is spent on Mideast oil goes to the bad guys that want to kill us. No F-16’s are needed to protect cornbelt ethanol plants. They are even safe from Gulf hurricanes. The livestock industries are doing everything they can to kill the ethanol blender’s credit and tariff to disrupt the ethanol industry and do as much damage as they can to domestic motor biofuel production. Their objective is reducing the cost of their feed…cheap feed at all costs.

Ethanol critics also decry the EPA increasing the blend limit to E-15. Their opposition to this is the height of hypocrisy. They claim to want to allow the market to decide what fuel is consumed and by raising the blending cap, it takes the government’s hand off the market. E-15 is voluntary, not mandatory. Corn based ethanol only requires E-12 to reach its RFS mandated 15 billion gallon limit.

E-15 is to allow access to the market for cellulosic ethanol which should have no impact on livestock feed costs. The NPPC and NCBA must not want to compete for corn stover for bedding with the cellulosic ethanol industry either. There are plenty of corn stalks to go around. U.S. corn producers will raise enough corn to supply all users; they just might not do it at a price below the cost of production that plains state livestock producers, spoiled by farm subsidies, got used to paying. Livestock industry opposition to higher blending rates is disingenuous.

Ethanol critics call ethanol proponents, apologists. I support ethanol and apologize for nothing. It’s been a huge boon to the Midwest economy. I am also a cattleman and believe that the ethanol industry is the best thing that ever happened to cornbelt cattle production. That’s why Midwest cattle on feed numbers are increasing. While the livestock organizations decry a third of corn going to make fuel, a third of that third comes back as distiller’s grain, a fantastic low cost feedstock ideally suited for cattle rations.

The NCBA represents southern plains feedlots where they have no long term future feeding cattle as they pump the Ogallala Aquifer dry raising corn, wasting energy – while the cattle should be fed where we grow corn with rain and feed wet distiller’s grain. They liked it much better when cornbelt farmers grew too much corn for the government subsidies, selling the surplus to them below the cost of production so that they could make money feeding it to cattle.

The system we have today subsidizes the ethanol industry with far fewer dollars than we do the oil industry, virtually ending farm subsidies related to corn, boosting U.S. corn production, growing net farm income, producing meat more efficiently nearer the source of low cost feed. That is a lot better system than that portrayed as desirable by the NCBA, NPPC and AMI. The country benefits from lower transportation fuel costs, more domestic supply, reduced trade deficit, and less cash going to terrorists by producing and consuming domestic biofuel.

Ethanol opposition has invested a lot into public relations to sully the reputation and benefits of ethanol and it’s time the truth was told.