Corn Is The New Oil

The debate about energy independence will begin to become a very large issue for the Presidential election.  There have been little bites of it strewn throughout the Republican debates but it has yet to become a full-blown issue.  It needs to be the primary driver of the conversation because without a robust energy policy, there stands a good chance that the manufacturing base in this country will remain flat.  We are beginning to see signs of the unsustainability of the solar panel business here in the United States, and the public is beginning to realize that although the idea of alternative energy is altruistic and environmentally sound, it is very much in the infancy stage and the government needs to get out-of-the-way and allow the private sector to grow that industry.  I feel in time it will become a decent size part of how we power our world but that is years away.  What is here and now is three items.  Oil, in all its forms, Natural Gas, and Corn. 

Oil it seems is everywhere.  From gasoline to plastic, oil is a primary ingredient in much of our world and will be a dominant player in our economy, both socially and politically, as long as it is around.  It drives our trucks and our machines and so it exists at all levels of production in our manufacturing world.  Its importance cannot be overstated. 

Natural Gas is next.  It is used to make fertilizer. It is used to generate electricity by powering power plants.  It is used in refrigeration and now we are seeing a push to use it to power the trucks that ship our goods.  It is an incredibly valuable commodity that we are fortunate enough to have in abundance. 

The new/old player is Corn.  Corn is everywhere.  It is the base product for almost all animal feed worldwide.  Think about that for a while.  It is all through the grocery store-corn syrup, cereal, corn starch and let us not forget that high fructose corn syrup is the glue that binds almost all foods.  Thanks to the government, now it is in our gasoline. 

Now we grow corn to burn it for fuel.  Brilliant.

These applications don’t just apply to us in the United States, they apply to the world.  Corn is the number one crop in the whole world and the main fertilizer used to grow corn (and most other crops) is Urea which is made from Natural Gas.  Are we beginning to see the pattern?

Everything in our world (the United States) was going along fine until China and India, and Russia, all became players on the world food stage.  We cannot forget that the push for democracy and reform in these countries is great for those being oppressed but the western world has suddenly been hit with 2 billion more mouths to feed.  These economies are trying desperately to feed people who want more than staples to eat. Our fertilizer markets our driven by the demand of these countries and, especially in the case of China, who makes the majority of the worlds Urea (fertilizer that grows corn remember) they don’t have enough acreage to grow enough corn to feed their people so they buy ours.

Here is where the law of Supply and Demand kicks in as corn prices rise here in the United States and impact our trips to the grocery store-and still we grow corn to burn it.  Add to the mix that our Corn crop has been severely damaged in locations from either drought or flood and we have a smaller supply in greater demand.  The laws of Supply and Demand dictate that prices go up.  So, Corn goes up and everything it is a component of goes up. 

So, we don’t dril for oil anymore, we don’t make our own fertilizer anymore and T. Boone Pickens is lobbying for Natural Gas 18 wheelers so he can build the gas stations.  Remember two years ago it was wind power!  Pitiful.

What has been our government’s response to the growing demand overseas? 

We send our corn overseas (what we don’t use or burn), we fight Natural Gas exploration in Pennsylvania (thank goodness it is booming and thank goodness that Russia has tons-maybe we can pay for theirs!).   We don’t allow oil permits to go through in the Gulf and in Alaska, so we have to deal with speculators and OPEC setting our oil prices and therefore impacting us from top to bottom economically. 

This is why Energy should be a major issue in the Presidential campaign.  It is probably the largest part of our economic lives.  We work to put gas in our cars, keep the lights and the refrigerator at home on because every business, house, and person in this world needs power.  Our computers need electricity and even our battery chargers for those who want to run off of batteries need to be charged!  The last time I looked, batteries don’t charge themselves. 

Here is a final thought to reminder-it is another law of Supply and Demand.  When Demand doesn’t equal Supply, Prices drop. 

We are well past the point of politics.  This is about people

I think it is time for an aggressive Energy Policy-And TERM LIMITS!. 

 We might even create a job or two (and get some bums out of office)!

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4 thoughts on “Corn Is The New Oil

  1. Actually we’ve been burning corn for a long time. Henry Ford wanted his auto to use ethanol from various sources, including corn, as its main fuel source. Corn ethanol as a fuel was used during prohibition to power fast cars to outrun government agents. Racers have used corn ethanol for years because the fuel does not explode the way gas does and it provides more power.
    Farmers, not government, are behind the renewal of the use of corn based ethanol. Government killed off the corn ethanol industry in the prohibition era. Farmers had to fight the government to get it back.
    About 50 years ago, when corn was cheap, farmers needed a new use for a crop that was always in an oversupply situation. Farmers started experimenting with and promoting corn based ethanol. Since then the farmer has learned how to produce over twice as much corn using the same or less fertilizer than back in the 60’s, they have also learned how to produce more ethanol from each bushel of corn than was possible only a few years ago. The largest corn based ethanol producer in the country, POET Biorefining, is owned by farmers and their families.
    Rice is the number one grain eaten and grown in the world.
    Except for sweet corn and pop corn, most of the corn (dent corn) grown in the world is for use in livestock feed, and as an industrial feed stock.
    As the price of corn has gone up, producers of pork, beef, turkey and chicken have switched to wheat and barley because they are cheaper. Expect the price of pasta and bread to go up next.

    • Thanks for the reply. I didn’t realize Henry Ford was interested in using Ethanol. I know it was used during WWII and the governments actual first recorded use of ethanol goes back to 1826. As a seller in the fertilizer industry, I am really close to what is going on. There is no doubt that the United States Agriculture Market, in my mind, has become the predominant driving force in our markets today. Corn has jumped from the commodities market and because of its probably permanent link to gasoline now, it has become one of the main drivers of price in our markets. The point of my post was to highlight, in general terms, that the government has no business inserting mandates into the economy. Here is why. Robert Pore of the Nebraska based Independent.com posted last month that “the growth of corn acres has come at the expense of wheat, sorghum, alfalfa and other smalll grain crops. According to the report, as annual U.S. ethanol production increased 9 billion gallons between 2000 and 2009, demand for the feedstock used to produce ethanol also increased” He follows that with “state farmers planted 135,000 acres of sorghum this year, the lowerst acreage since 1930. In 2000, Nebraska farmers planted 600,000 acres of sorghum. Wheat is another example example. IN 1990, state farmers planted 2.45 million acres of wheat. This year, state farmers planted 1.5 million acres” (2011). Additionally, the non partisan Congressional Budget Office states, ”

      The more than 9 billion gallons of ethanol that Ameri­cans consumed during 2008 displaced about 6 billion gallons of gasoline. The difference in the number of gallons of ethanol on the one hand and gasoline on the other arises because the energy content of a gallon of gas­oline is greater than that of a gallon of ethanol. About 1.5 gallons of ethanol are required to provide as much energy as 1 gallon of gasoline.”

      “The federal government has supported the development and use of ethanol since the late 1970s through programs that subsidize the production of ethanol, impose tariffs on ethanol imports, and mandate particular amounts of consumption. Those programs provide support because, when the two fuels are assessed on the basis of their energy content, ethanol has often been more expensive than gasoline to produce in the United States. ”

      The government mandate to have 36 billion gallons of ethanol and biodiesel produced by 2022 domestically passed by the Bush Administration is pushing the change. I am not arguing it is good or bad, my argument is that the goverment should’t be regulating it without a long term comprehensive plan.. According to CBO, if the government didn’t subsidize it, it would struggle to break even at best. Last years corn crop was 88 million acres and this years according to USDA reported by Farm Industry News is over 93 million acres. In terms of the goverment mandate, the ethanol industry already produces more ethanol than prescribed by the mandate. That tells us that farmers are growing more corn because they can make more money. I don’t blame them. They should make the money but the government shouldn’t be in the mix. This was the pattern in Nebraska, Iowa, South Dakota and Minnesota (in terms of increased acreage this year). We have gotten nowhere with the mandate except higher food and gas prices. That was my point about a real Energy Policy. Keep growing strong, the United States and the world both need your product.

      http://www.cbo.gov/ftpdocs/100xx/doc10057/MainText.4.1.shtml
      http://www.ers.usda.gov/Briefing/Corn/trade.htm

  2. I would love to see alternative forms of energy especially those that I can burn in my car. I want them to be abundant, cheap and efficient. I feel that there is no consumer choice for ethanol at the moment and as a result I’m dealing with inflation taxes. I have government to thank. Portions of my federal taxes are given to agriculture in the form of subsidies and incentives to produce more ethanol friendly veggies for energy related consumption. These “farmers” are getting paid by the consumer to create the supply of ethanol that government demands the consumer use. No choice. There isn’t an upside because in the process my buying power decreases at the supermarket (inflation) as agricultural acreage is utilized to farm the “cash cow”. Farmers are making money but I don’t think they are the driving force behind ethanol otherwise all they would plant is corn and it would take a government regulation or lack of subsidy to force them to plant something else. As a taxpaying consumer, I pay at both ends regardless of consumer choice in this matter. The government knows best mentality needs to bow out to necessity and invention.

    • Good Points B. what we are seeing is made up demand. The Government is setting the terms of the mandate and as a result are creating demand for the product. It is illusory at best. I don’t doubt the need for ethanol in certain industries like the first reply stated. That is great, but to shift our entire economy around energy sources that are for political gain and not in alignment with our long term educational goals (who knows what they are) is capricious at best. We might as well be playing pin the tail on the donkey with the younger generation in terms of jobs. Globalism is good in many regards but if we cannot orient ourselves as an economy and as a people in a way that will benefit us for the long term we are really _______ in the wind.

      The problem that exists is that the GP (general public) is totally unaware of what is happening around them. We are in very scary times right now.

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