Ethanol Bonanza
by Joseph Morris

I happened to speak this morning with a client who is a farmer in the Danville, Illinois, area.  In the course of our conversation I learned the following about the corn business these days:

His crops are now in for the season.  He is growing mostly corn, and virtually all of his corn is destined for processing into ethanol, mainly for motor car fuels.

He sells only the ears.  (The stalks and other parts of the plant are not used in the ethanol production process.)

One bushel of corn yields about three gallons of ethanol.

Last year he was paid $1.80 to $2.00 per bushel.

This year he will be paid $3.72 per bushel.  (The price is already locked in by contract.)

He sells to a middle man (a poultry producer) who, in turn, re-sells to the ethanol processors.

These humble facts (coming straight from the grassroots, so to speak) strike me as really quite fascinating.

Joseph A. Morris is a lawyer at Morris & De La Rosa in Chicago and a director of the American Conservative Union

Joe: The $1.72/bushel price increase, from last year’s $2 to this year’s $3.72, represents an 86% increase.  When you next fill up at the pump, notice if the fuel you’re buying contains the government mandated 10% ethanol.  Don’t like the high price of gasoline?  Call a corn farmer.

And what additional investment did the corn farmer make to justify this 86% sales price increase per bushel?  Zero.  Is that not the classic definition of a windfall profit?  Where are the screams from the Democrats for a windfall profits tax on these greedy corn farmers?

In 2006, according to the USDA, domestic corn production totaled 10.9 billion bushels, at an average yield of 153.5 bushels per acre.  Assuming the 2007 bushel yield per acre comes in 153 bushels, the same 71 million acres planted in corn last year will produce total corn sales this year of $40.5 Billion compared to $21.8 Billion last year.  All else being equal, corn producers are enjoying an $18.7 Billion windfall profit.   Remember also, that ethanol produced in the US enjoys a $0.51/gallon federal subsidy thanks to the very effective lobbying of ADM.

Think any of the Presidential candidates are talking about this in Iowa?  

J. William Lauderback, Executive Vice President of The American Conservative Union

Bill: You correctly say “ ethanol produced in the US enjoys a $0.51/gallon federal subsidy thanks to the very effective lobbying of ADM.” But in addition there is a 50 cents per gallon tariff on cane-derived ethanol imported from Caribbean/Latin American nations, thus protecting the U.S. corn monopoly.  Without it, there would be no need for the 51¢ subsidy which comes out of taxpayer pockets unseen.

Moreover, it takes something like three times the cost of energy in a gallon of ethanol to produce that same gallon, which in turn gives you half the miles per gallon of a gallon of gasoline. Stupidity--rent-seeking gone to insane extremes.

Jameson Campaigne, Secretary, The American Conservative Union