Posted by paul on November 30, 2011 at 19:06:57 from (66.44.133.10):
In Reply to: Ethanol information? posted by AllisG on November 30, 2011 at 15:44:45:
This is a rather controversial topic on this site, so you _may_ get some conflicting opinions.
Just saying. ;)
In the 1980's many things conspired to make corn - and all grain - prices terribly low in the USA, especially in the upper midwest where it grows well, but it was difficult to ship out to other countries. The govt had done several embargoes on grain in the past 20 years so other countries didn't trust the USA to buy grain from, depressing USA grain prices. The USA dollar was very very strong compared to the rest of the world, making USA corn seem very very expensive compared to corn from other countries.
In short, the USA was drowning in cheap corn, and no one really knew what to do - it was destroying USA farming as we knew it.
Some govt folks and some farmers got together, and thought, hey, if we could use some of this cheap cheap corn to make fuel with it, it would help reduce the surplus of corn, and help supply some fuel which was kinda in short supply, and it would help keep our air cleaner because ethanol blends burn a bit cleaner than pure gasoline. (As it turned out, ethanol is also vastly safer for the environment than MTBE too!)
So, the govt people passed laws to help make ethanol get used in our fuel supply, and farmers build ethanol plants that break down corn into ethanol and livestock feed.
Minnesota was kind of on the lead in this, and one of the first ethanol plants was built 15 miles from me. Some laughed, some invested money in it, there were a lot of hiccups and problems, bur eventually it worked, and worked well.
So, over winter when we have piles and piles of corn here in MN, and the Missisippi river is frozen over so we can't shp corn anywhere.... These ethanol plant continue to use up corn, while producing more than enough livestock feed from the 'waste' DDG that the ethanol plant has left over after making ethanol.
It was a real win-win for our area.
And it made corn 'basis' price in my area go up 10, maybe 15 cents! 'Basis' is the local price of corn. CBOT is considered the 'national' corn price, but wherever you live, the actual price of corn is different - some places in the south to the east actually can get _more_ than the CBOT price for corn, because they don't grow enough locally and have to ship it in. Places like Minesota we grow a _lot_ of corn and so it is always cheaper here than the CBOT - we have to pay shipping to get rid of the corn.... Often our 'basis' here is 50 or 60 cents less than the CBOT price.
So, it was really nice to get that extra 10 or 15 cents for corn 'here'. And, it really didn't affect the CBOT price all the rest of you base your corn prices on. It affected 'basis' price a little, with very little effect at all on 'CBOT' price.
Farmers built the ethanol plant with their own dimes, it raised the basis price of corn a bit in the corn-ritch parts of the USA, it produced enough feed for the livestock in the area anyhow, and didn't effect national or export corn prices very much at all - slightly.
Now, by the mid 2000's, everyone went nuts, built ethanol plants in stupid areas where there was no cheap corn, looked to the govt to ever increase the use of ethanol and support it forever, and the buzz was how much corn all this ethanol would use - which got noticed by investors who decided to go stick money into the CBOT and create a paer-demand for corn, which did raise the price of corn - because of this flush of spare money thown into the market....
At the same time, the USA dollar has fallen horribly in value, and the Pasific Rim countries - mostly China - have a lot of cash and are willing and able to buy our cheap soybeans, pork, and poultry and a bit of corn, which again makes the CBOT push corn prices up up up. But this is all related to the world ecconomy, not ethanol.
So........
In the long run, the USA always has produced more corn than it can consume. With or without ethanol. Little real reason for CBOT values to change much.
Ethanol has created areas of the USA where the price actually went up a little bit dime, quarter, or so - per bushel.
The 'hype' of ethanol created an investing frenzy or bubble that di create higher corn prices for everyone - but that is mostly a 'hype' thing,and will fall flat again some day. Is this bubble because of ethanol, or because of hyped up Wallstreet investors???? Hum.
Currently corn prices are very high in the USA, but this is derectly a result of the very low value of the USA dollar - world ecconomies and events. Anyone saying the $1.80 corn of 1980 vs the $6.00 corn of 2011 is only because of ethanol is nits. It's because of world demand and the low USA dollar.
Ethanol actually raises corn value a dime or quarter per bu; and can create some hype that increases the speculation in corn prices.
I'm sure some will totally disagree with me, and I am not the best explainer of things, but if you want a true view of corn ethanol, there's a lot of stuff to understand & put together. This is an outline of it.
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