Ethanol Cost? No. Ethanol is Saving You Cash.
In a couple of recent posts TMFDeej made the case that Governments mandate of adding ethanol to gasoline is costing us all in increased food costs.
The argument goes like this: total corn grown - corn grown for ethanol = less for the food supply = higher food prices. When you also presuppose that all Gov't intervention into any market, anywhere, is a bad thing, it is easy to just look at that theory for an explanation of higher food prices and say "whup, there it is".
The real world is not so simple.
In one of the replies I wrote that the likely cost to a box of corn flakes from the increased price of a bushel of corn is less than a dime. Deej either did not read it, or did not agree because he followed it with the second post.
I also asked what the cost of a barrell of oil would be if the ten percent that was ethanol, was petroleum instead. Merril Lynch, I have since learned, estimates 15% higher.
This article is from 2008, but everything it says still holds true. The vast majority of your food costs are in processing and distribution - the oil to run the trucks, the lights at the grocery, etc. If the oil was 15% higher, food would cost you more than it does.
Last year I went long - only in CAPS - JJG and JJA not because of the influence of biofuels on crop prices, but because of the influence of global warming induced weather extremes on crop production. Austraila was crushed by drought and then trashed by floods, Russia was destroyed by heat and drought, Argentina - drought, Pakistan - flooding. All of that weather could be just weather, just as four major hurricanes hitting Florida could be just weather. But the more "just weather" events there are, whether they are record precipitation, highest ever temps, or number of hurricanes, the more likely global warming is coming to pass. Whether you believe in global warming or not, it is the extreme weather events, + increased food demand + increased oil costs = higher food prices. Ethanol has kept costs down.
PS. I was against ethanol subsidies. No longer.