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President Obama's administration fears losing key swing states if it drops corn farmer-friendly quotas

It's a painful memory etched into many chapters of American history -- selling the farm.  But amid a record-setting drought many farmers fear that may be precisely what will happen.  But unlike past farm failures, this one may come not solely from nature, but from the government's decision to artificially inflate corn prices by mandating corn ethanol production.

I. Corn Ethanol - Pork 101

It's hard to understand why corn ethanol fuel in the U.S. has stuck around for as long as it has.

Unlike a handful of nations (i.e. Brazil), the U.S. lacks the resources to supply all its fuel needs with sugary food-crop ethanol.  Thus, unlike those nations U.S. automakers have been largely unable to sell pure-ethanol vehicles to consumers.  That's a game killer for corn ethanol, as it means that consumers pay more at the pump using ethanol than they would using gas as mixed-fuel engines lack the fuel efficiency advantages of pure ethanol engines.

Corn ethanol handouts
The federal government has funneled billions in handouts to the corn lobby. [Image Source: AP]

Then there's the economics -- corn is a food crop, so using it as a fuel source drives up prices on everything from snack foods (corn syrup) to beef (cows eat corn feed).  Finally, there's the environmental issue.  One of the big goals of the alternative fuels movement is to reduce emissions of carbon and noxious (nitrogen or sulfur containing) gases.  But studies have shown corn ethanol actually leads to higher emissions than gas.

Corn ethanol's strange status in the U.S. perhaps began when corn producers seized on the experimental fuel as a means of bumping the billions they already received in government subsidies even higher.  During the Bush and Obama administrations, the corn lobby opened its checkbooks to many members of Congress, and in exchange reaped a multiplier in the form of billions of grants and subsidies for corn ethanol -- all on taxpayers' dime.

Perhaps most significantly, the federal corn supporters authorized the EPA to mandate all fuel sold to contain a certain percentage of ethanol -- in essence forcing all Americans to pay for corn ethanol, even if it was bad for their cars and not something they wanted.

II. Quota Remains Last Major Handout to King Corn

As part of the government's embrace of corn ethanol, the Energy Independence and Security Act of 2007 (EISA) -- passed by Congress and signed into law by President George W. Bush -- mandated a series of ever-increasing production targets to be regulated by the U.S. Environmental Protection Agency (EPA) (a slightly ironic duty consider there was strong evidence corn ethanol harmed the environment).  The idea among corn producers who backed the bill leaning on the candidates they "funded" was ostensibly that this would force future Congresses to commit to ever-increasing subsidies.

But after the recession, public backlash against wanton government spending led to Congress cutting corn ethanol's subsidies.  But Congress did not bother to overturn the EPA's emissions targets.

Cattle farmers
Cattle farmers fear they could go under if corn prices stay artificially high. [Image Source: Texas Vox]

While cutting the subsidy, but leaving the quota might seem like adding insult to injury, corn producers were actually happy (mostly) that the quota remained.  The quota created higher artificial demand, driving up prices.  That artificially elevated demand has helped the corn industry weather the recent droughts, as corn prices have risen 60 percent.  

But while that may have saved big corn's profits in a year which otherwise would have been disastrous, the damage has essentially been passed along to livestock producers.  

Mike Deering, a spokesman for the National Cattlemen's Beef Association, says his organization has pleaded with the EPA to temporarily cut targets to alleviate already drought elevated corn prices made even higher by artificial ethanol demand.  He comments to ABC News, "Our ears are open and the line of communications is open, [but] we do not have any definitive news at this point and time."

III. Trading Higher Food Prices for Votes

Perhaps this is a case of reaping what you sow, but amid pleas from livestock farmers there's not a drop of relief in sight.  The issue lies with how the EISA is structured.

While the EPA has the power to temporarily reduce production quotas, it must receive that request from states or ethanol refiners.  An ethanol trade group -- the Renewable Fuels Association -- said it "wouldn't be surprised" to see such a request, but none has come yet.  The issue is that corn demand actually helps corn farmers, refiners, and corn-producing states.

Currently about a third of corn is used to make ethanol, another third goes to livestock feed, and the remaining third is sent for human consumption either as a vegetable or in various food additives (corn syrup, corn starch, etc.).

The cattle industry warns, "The drought-induced reductions in the corn supply means that the mandated utilization of corn for renewable fuels will so reduce the supply of corn and increase its price that livestock and poultry producers will be forced to reduce the size of their herds and flocks, causing some to go out of business and jobs to be lost."

One problem is that supporting corn ethanol has held the key to Presidents Bush and Obama wining crucial swing-state battlegrounds.  

In 2008 President Obama won three of the four largest corn producing state -- Iowa, Minnesota, and Illinois.  He also won other swing states with large corn growing regions, including Michigan, Ohio, and Wisconsin.  Support of ethanol earned President Obama and other regional politicians key support -- both financial and in votes.  Unsurprisingly politicians in these regions and the President are key supporters of corn ethanol.

Electoral college 2008
Corn ethanol supporters were key to President Obama winning battleground states in 2008.
[Image Source: Wikimedia Commons]

Meanwhile the states who are hurt the most by the quotas -- livestock states like Texas -- are regions where President Obama holds little hope of winning electoral votes.

Of course, there is a risk that supporting government inflation of corn prices could backfire.  Outside of corn producing states who directly benefit from higher corn prices, voters in other swing states might look to punish President Obama and the backers of big corn if failing livestock and higher food corn prices could drive up costs of meat and many dry foods.

For now, though, the quota stands.

Source: ABC

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RE: corn ethanol
By Ringold on 8/3/2012 9:06:49 PM , Rating: 4
That's a hold-over from Malthusian thought, a school of economic thought dead and abandoned by all but Marxists for at least 2 centuries.

We're scarcely constrained by resources as it is. People are hungry due to government failure, not a lack of food; there's more then enough to go around, but corrupt autocrats are more interested in lining their own pockets and that of their camel-humping clan then improving the lot of their nations. More and more 'resources' consumed are in services, technology and media, areas essentially unlimited in nature. And recycling technology advances, year in and year out. Meanwhile, more and more iron, copper and other reserves are found, existing mines keep going, and ways to exploit aging mines further are devised.

Even in agriculture, the green revolution has scarcely touched Africa. There's been, compared to Europe and North and South America, almost no research on how to optimize yields there, given local soils and weather. Very little advanced seed used, very little GM seed. Africa could, very easily, by just deploying best practices and a little more technology, quadruple their yields.

The next frontier is starting to open up as well, as SpaceX proves on an almost monthly basis. People aren't laughing at commercial space any more, so by one famous estimate we might be 50 years from a space elevator now. With a thousand years or more of easily accessible nuclear fuel, then if we haven't moved past this little planet then its no ones fault but our own.

No, the only places we are resource-constrained are in areas where we place artificial limits on ourselves. Europe has high natural gas prices, but several countries ban fracking entirely, for example.

RE: corn ethanol
By Jeffk464 on 8/3/12, Rating: -1
RE: corn ethanol
By Ammohunt on 8/3/2012 9:56:27 PM , Rating: 2
Tell that to the dry land farmers that settled the area on the edge of the pawnee national grasslands where i live. Its a green oasis in an otherwise semi-arid desert.

RE: corn ethanol
By Ringold on 8/4/2012 6:27:00 PM , Rating: 5
Also tell that to Brazil. Most people did, thought Brazil's soil largely too acidic or otherwise lacking to be arable.

Surprise! Brazil applied a little research, a little elbow grease, and now Brazil is an agricultural king-pin.

Obviously desert will never be easily productive farmland, of course. No one would suggest so. But that's only a portion of North Africa. Zimbabwe, before losing is fraking mind, was the breadbasket of Africa. Now it's reduced to subsistence farming, at best. It could very easily be a massive exporter, as could almost all of its neighbors.

I'm sorry, but there's zero evidence of Malthusian resource limitations being anywhere close around the world. Even the most dire shortage, water, is one largely government-created; governments tend to massively underprice the cost of water, leading to wasteful usage, damaging ways of getting it, and disregard for reclamation. Food, again, is a governance problem. Other raw material prices are up this decade, but its remarkable not in how much they've risen but in how little they have considering 2 BILLION people are working on joining a global middle class.

RE: corn ethanol
By Paj on 8/6/12, Rating: -1
RE: corn ethanol
By spamreader1 on 8/6/2012 9:38:54 AM , Rating: 1
You're on to something there. On the research on optimizing yields in Africa, there has been quite a bit. The major problem with common staple crop yields in Africa is the climate. They have 2 seasons, wet and dry. The crops that produce so well for climates outside the tropics don't produce very well at all in most of these regions.

The research needs to focus more on what does grow well in that area and how it can be safely brought to larger scale. (Water is already at a premium so contamination of that resource would be disasterous.)

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