Will Nothing Slay the Ethanol Dragon?
The drought is causing the government to prop up both the agriculture and ethanol industries to the detriment of anybody needing to buy food or fuel.
Apparently the beast cannot be starved to death. As the drought kills off corn by the stalk, animal feed costs are rising, and this has a big impact on livestock management. It's causing ranchers to slaughter their animals earlier than usual, increasing the supply temporarily and actually pushing down meat prices.
Yesterday, President Barack Obama announced a plan for the government to buy $170 million of this meat in order to keep farmers happy by keeping the prices up. This is a terrible idea, as the Washington Examiner explains:
"Prices are low, farmers and ranchers need help, so it makes sense," Obama explained. "It makes sense for farmers who get to sell more of their product, and it makes sense for taxpayers who will save money because we're getting food we would have bought anyway at a better price."
None of this makes sense. In fact, Obama's move only harms American consumers while protecting a corrupt federal program.
A drought is currently driving down corn production. The shortage of feed is forcing livestock producers to slaughter animals early, putting downward pressure on meat prices in the short run and guaranteeing shortages and higher prices next year. But nature is not the biggest factor in this crisis—the government is. Specifically, the federal government's ethanol mandate, which requires that 13.2 billion gallons of corn-based ethanol be produced in 2012.
Thanks to the ethanol mandate, more than 40 percent of the nation's corn crop now goes into the production of a useless fuel that hardly anyone would buy if the government didn't require it. That's up from just 17 percent in 2005, before the mandate went into effect. Only 36 percent of the corn crop now goes for feed, and 24 percent goes for food.
Obama could solve this problem instantly by suspending the federal ethanol mandate—something his EPA actually can do unilaterally and legally. Instead, Obama will buy up meat—a move that meat producers say won't help them much anyway. "It doesn't solve the problem of having enough affordable corn next summer," industry analyst Steve Meyer told Reuters. "Without changing the ethanol program, nothing can be done," he said.
Right, so the artificial purchase of the meat will keep prices high, not low. And then next year when ranchers really start having to pay through the nose for this year's poor corn crop, what happens to meat prices?
Even the United Nations is begging the Environmental Protection Agency to suspend ethanol fuel mandates, but there's no sign of movement so far. The consequences:
To recap, government is driving up the cost of food, animal feed and gasoline, and Obama's solution is to drive up meat prices as well. Obama could eliminate the entire problem overnight and reduce carbon emissions were he to waive the ethanol mandate in a time of drought. Instead, he is creating a new spending program to mollify livestock producers, who, were it not for the ethanol mandate, would be able to make an honest living without his help.
Last week, Obama said he wants to do for other industries what he did for General Motors. If by this he meant waste taxpayers' money to preserve a lousy status quo, then bravo and mission accomplished.
Damon Root pointed out earlier an analysis of how Obama is pandering to farmers with subsidies already. If the government wasn't so insistent on catering to both the farming and the ethanol lobbies, our food and fuel prices would drop.