An old Midwestern maxim deems a corn crop healthy if it's "knee-high by the fourth of July. " Yet when it comes to the expectations that...
An old Midwestern maxim deems a corn crop healthy if it’s “knee-high by the fourth of July.”
Yet when it comes to the expectations that corn-based ethanol will cure America’s dependence on foreign oil, the hype is way over everyone’s head.
Running the numbers on how much land could be put into production for corn-based ethanol makes it clear how little of the fuel could be produced to help curb America’s energy gluttony.
There isn’t enough suitable land for corn growing to make a significant dent in America’s voracious energy needs. Yet that hasn’t stopped ethanol investors or a wave of irrational exuberance from Wall Street to Brazil.
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You can see the ethanol frenzy at more and more gasoline stations.
The number of fueling outlets providing gasoline with “E85,” or gas containing 85 percent ethanol, is now more than 1,200, compared with less than 750 stations last year, to service more than 4.5 million flexible-fuel vehicles, according to the National Ethanol Vehicle Coalition. There are 110 ethanol plants running in the U.S., with 73 more under construction.
Bolstered by President Bush in his State of the Union address, it’s projected that U.S. ethanol production will reach 35 billion gallons per year in a decade — double the current level.
Yet there’s a resource issue that’s rarely mentioned in all of the ethanol cheerleading.
To grow corn, you need lots of land, water, fertilizer and fuel. Most of the commodity is cultivated in Iowa and Illinois where the rainfall is usually sufficient and the soil rich enough for high-yield corn.
Say you were able to cultivate every acre of Illinois for corn-based ethanol. This is purely hypothetical as it would involve bulldozing Chicago and other cities and towns in the Prairie State. As an Illinois resident surrounded by cornfields, fleeing demolition is not my relocation fantasy.
One of the potentially most-productive corn-growing states on the planet would yield about 5.7 billion bushels of corn and 16 billion gallons of ethanol, according to Charles Washburn, professor emeritus at California State University in Flagstaff, Ariz. He has researched the subject over the past 45 years.
The Illinois mega-crop would provide only 0.8 percent of annual U.S. gasoline and diesel-fuel use, Washburn estimates, subtracting the energy it takes to create ethanol.
Most fertilizer is produced from natural gas, a byproduct of oil drilling that is rising in price.
The other byproduct of the ethanol obsession is more-expensive food. Higher corn prices have boosted the cost of producing beef, poultry and thousands of processed products.
Food prices have climbed an average of $47 per person due to the ethanol surge since last July, according to an Iowa State University study published in May; corn-price futures reached a 10-year high of $4.28 a bushel in February. All told, ethanol has cost Americans an additional $14 billion in higher food prices.
Peak, then burn
The ethanol reality hasn’t fully sunk in on Wall Street. Archer Daniels Midland, based in Decatur, Ill., has added 14 percent. It is the largest U.S. processor of ethanol.
Those who bet exclusively on ethanol will suffer the same fate as those investors who took the plunge on fiber-optic, Internet and computer-router companies in the late 1990s. They will concentrate their risk when prices are at a peak — and then get burned.
For a broader sampling of biofuel and alternative-energy stocks, try an exchange-traded fund such as Market Vectors Global Alternative Energy ETF, which tracks a basket of companies that invest in wind, solar and biofuel technologies, or the Powershares Wilderhill Clean Energy Portfolio.