Cows vs. Cars

California dairy farmers are getting screwed by corn ethanol, despite a record corn harvest again this year.

"The price took off about three or four months ago, and it hasn't stopped," said [rancher, George] Grossi, who uses about 25 tons of grain every two weeks to feed his herd of 200 cows. "It's because of all the new ethanol plants that are coming online."

The U.S. ethanol industry is booming, with more than 100 operating biorefineries and dozens more under construction, according to the National Corn Growers Association. Those refineries added about 5 billion gallons of fuel to the country's gasoline supply in 2006.

All this (state-mandated) demand for corn hasn't put a dent in federal price supports for the industry, of course. Don't fret, though:

"With lower energy intake, cows will produce less milk," [University of California at Davis dairy economist Bees] Butler said. "The milk supply will drop, the price of milk will rise, and the market will achieve equilibrium. It's almost magical."

Indeed.

More on corn ethanol and its discontents here and here.

Comments

[Native NYer]

Isn't the price of milk also state mandated? I'm pretty sure it is here in New York.

[madpad]

Who cares? The madness of the thinking is downright surreal. It's like a huge disconnect in the understanding that milk is a nutritional staple for people.

[Aresen]

The Law of Unintended Consequences strikes again.

[Jek]

Why don't "They" use beans and make bio-diesel instead of messing with corn? Bio-Diesel would eliminate many pollutents and give you good MPG. Although, not everyone has a diesel vehicle, one that could be converted to use bio-diesel either.

[Art]

Native NYer:
You are correct. Milk prices in NY are state mandated which is why the price increased 100% last year. No need for the good old market place when you have NY government at the helm.

[Kwix]

Jek,
Because the vast majority of non-commercial vehicles in this country are designed to run on gasoline not diesel. Two completely different powerplants. Bio-diesel runs in diesel engines just fine whereas gasoline engines require a less viscous fluid with a lower flashpoint, eg gasoline or ethanol. With modern computer controlled timing, ethanol is easier to use than any time in the past (it was a real pain to have to re-jet a carb anytime you changed your fuel mix).

The real question is why we are using corn and not sugar cane or sugar beet? Corn to Ethanol conversion is far less efficient than Sugar Cane to Ethanol. It is because the corn industry is still heavily subsidised and the cane industry has had tariffs propping its price up for years.

[Big Dave]

If it wasn't for milk price supports that increase the further you are from Eau Claire WI, there wouldn't be any milk cows in California. Then they could whine about something else.

[MikeP]

Because the vast majority of non-commercial vehicles in this country are designed to run on gasoline not diesel.

But the economic efficiency of the biofuel solution is determined, as with everything else, at the margin. Having 100% of vehicles using 15% ethanol is the same with regard to fossil fuel consumption as having 15% of vehicles using 100% biodiesel. If biodiesel is the cheaper and better biofuel, then the latter is the preferable solution. If biodiesel is indeed cheaper than gasoline in the long run, then the vehicle fleet in time will migrate to have a greater fraction consume biodiesel, making petroleum cheaper and a less stressful resource in the process.

Of course, subsidizing or otherwise picking the winner destroys all hope of the market finding the best solution.

[MikeP]

Because the vast majority of non-commercial vehicles in this country are designed to run on gasoline not diesel.

But the economic efficiency of the biofuel solution is determined, as with everything else, at the margin. Having 100% of vehicles using 15% ethanol is the same with regard to fossil fuel consumption as having 15% of vehicles using 100% biodiesel. If biodiesel is the cheaper and better biofuel, then the latter is the preferable solution. Furthermore, if biodiesel is indeed cheaper than gasoline in the long run, then the vehicle fleet in time will migrate to have a greater fraction consume biodiesel, making petroleum cheaper and a less stressful resource in the process.

Of course, subsidizing or otherwise picking the winner destroys all hope of the market finding the best solution.

[Ken Shultz]

The market reacting to demand for corn is a good thing, and in the hierarchy of public policy stupidity surrounding biofuels, requiring ethanol is probably down the list somewhere.

...somewhere below support for hydrogen and imposing tariffs on imported ethanol.

[Kwix]

Mike P,
You are correct that any governmental interference inhibits the ability of the markets to regulate themselves.

Regarding Diesel/BioDiesel, until quite recently, the price of petroleum diesel fuel, per gallon, was less than gasoline, and even now, per mile, the cost is less as diesel engines typically outperform gasoline by 20-30%. Yet gasoline fueled vehicles still out-sell diesel fueled ones by a margin of 34:1 (2005 sales, 16.5M : 550k). This could be due to possible price differences between diesel and gasoline models, maintinence costs, the lack of said models in certain manufacturing lines, pre-concieved notions of the "dirtiness" of diesel fumes or even the lack of availability of diesel at the pump in many regions.

[Ken Shultz]

I understand why consumers, so inclined, should choose between biodiesel, ethanol and other fuel sources, but we're not arguing about whether the government should get behind biodiesel or ethanol, are we?

...'cause the government shouldn't get behind either one.

[Lost_In_Translation]

ethanol is a dead end street for energy. Its a waste of money and will eventually go away when politicians are no longer hopped up on it. If I was in charge of government, the entire corn industry would feel my wrath as I cut subsidy after subsidy, finally making it compete fairly with other food staples and ending this rediculous business of back scratching.

[MikeP]

...but we're not arguing about whether the government should get behind biodiesel or ethanol, are we?

If one can prove that the government has picked the wrong winner, that goes a long way to prove that the government should not try to pick any winner...

[Sam-Hec]

hehe

I had commented for a couple years now that biofuels would compete with meat and dairy industries.

Ethanol as a fuel in and of itself is dumb. Biodiesel is better; however 25% of biodiesel is made up of Ethanol, but at least it makes sense.

What doesn't make sense is the subsides, price controls, and regulations which stifle the biofuels market.

[Kwix]

If one can prove that the government has picked the wrong winner, that goes a long way to prove that the government should not try to pick any winner..

The War on Drugs is a prime example of how easy it is to convince the populace that the government has picked the "looser". Wait, you mean we are still funding that POS and the government thinks they are "winning"? Crap.

Better that the government not be allowed to pick anything, winner or looser.

[Ken Shultz]

If one can prove that the government has picked the wrong winner, that goes a long way to prove that the government should not try to pick any winner...

But we can't pick the winner either. We can point out some obvious losers--hydrogen making a good example I think. ...but no one can say which will win out in the marketplace--or indeed if they won't both exist side by side as legitimate competitors. That's the point.

No one can pick the winners. Not me. Not the government.

[Aresen]

LiT

"I was in charge of government, the entire corn industry would feel my wrath as I cut subsidy after subsidy"

I foresee a small difficulty in obtaining campaign financing...

[MikeP]

In case it's not absolutely clear, I completely agree that the government should not try to pick winners or in any way subsidize or protect any actors in any markets.

And, indeed, the very concept of picking a "winner" shows a vast ignorance of how resources and values are efficiently mediated by markets.

[TJIT]

Jek,

Beans are a important component of livestock feed. You would run into the same problem with beans that the dairy farmers are running into with corn.

[TJIT]

Ken Schultz,

You said

The market reacting to demand for corn is a good thing, and in the hierarchy of public policy stupidity surrounding biofuels, requiring ethanol is probably down the list somewhere.

Except the rising cost of corn caused by ethanol subsidy driven demand for corn is probably going to have a rather nasty economic impact on the producers of beef, pork, and chicken who don't receive any farm program support.

[J sub D]

It's like a huge disconnect in the understanding that milk is a nutritional staple for people.

I just got here madpad. But DAMMIT, I'm not switching to water or wine to pour on my Fruit Loops in the morning! Mess with my milk and I could become a revelotionary.

For crying out loud, let the market sort it all out. Even though consumers of products don't have master's degrees from Brown University, collectively they are magnitudes smarter than the so called experts.

[Ken Shultz]

Except the rising cost of corn caused by ethanol subsidy driven demand for corn is probably going to have a rather nasty economic impact on the producers of beef, pork, and chicken who don't receive any farm program support.

Please note that I did put it on the list of public policy stupidities surrounding biofuels.

[Aresen]

J sub D

Wine with my Shreddies might just make going to work bearable.

[jkp]

"California dairy farmers are getting screwed by corn ethanol"

For some reason, I find this funny, in a very ribald way...

And isn't Brown that college that doesn't give out actual grades?

[grumpy realist]

No, actually increasing the market for soybean mash would encourage the production of biodiesel. At present, one of the factors holding down the raw materials on the market is that soybean oil (used as a raw material in biodiesel production) is a byproduct of the soybean crushing process, used to produce soybean mash. Encouraging higher soybean mash production provides more soybean oil out on the market.

And no, biodiesel doesn't have ethanol in it. Biodiesel is formed from triglycerides, which are then broken down through an esterification process via interaction with methanol to form methyl-terminated fatty acids and glycerol. The methyl-terminated fatty acids are the biodiesel; the glycerol percipitates out.

And please, before talking about biodiesel vs. diesel, please note that present prices of petrodiesel and gasoline fail to incorporate all the economics associated with the process. Biodiesel has far more of the externalities already tied in, which is why it is more expensive. True pricing of fossil fuels would charge for the fact of depletion.

[MikeP]

True pricing of fossil fuels would charge for the fact of depletion.

What the hell is the "fact of depletion" and how would one "charge" for it?

[MikeP]

What the hell is the "fact of depletion" and how would one "charge" for it?

By the way, that was a

[Sam-Hec]

Grumpy Realist,
According to sources I have read Ethanol is one possible material to use in place of Methanol for the processing of Biodiesel. From Wikipedia on Biodiesel:
The most common form uses methanol to produce methyl esters as it is the cheapest alcohol available, though ethanol can be used to produce an ethyl ester biodiesel and higher alcohols such as isopropanol and butanol have also been used.

[Sam-Hec]

Additionally,
http://en.wikipedia.org/wiki/Biodiesel
Biodiesel has a wide variety of possible feedstocks. We don't have to rely soley on the low oil volume yield/acre-year crop known as the soy bean. HEMP! among other things do much better.

Subsidies keep us addicted to that bean. (Not talking coffee.)