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You have probably heard about the debate over ethanol, a biofuel made from corn, that has been raging on for the past several years.  Ethanol, which is cleaner burning than gasoline, is better for the environment.  But that does not mean it is without problems.  In fact, while ethanol may solve one problem, it simultaneously creates others. And while unintended, some of them are very serious.

HOW IS ETHANOL PRODUCED?

Ethanol is made from corn by extracting the sugar. As a result, it is much cleaner to burn than the gasoline and/or diesel fuels used by most automobiles.

Another advantage is that the byproduct of ethanol can be used in animal foods. The byproduct is a sludge type material that is very high in protein that is very nutritious.  This has advantages monetarily since the corn plant is used completely — both as a source of fuel and as a food for animals. 

Because energy consumption is on the rise world-wide, biofuels such as ethanol are very important not only for the United States but for nations all over the planet.  The production of Ethanol is also energy efficient.  Why?  Because the ethanol produces approximately 33 to 66 percent more energy than what is required in its production.  Keep in mind, however, that some of these figures come from the U.S. Dept of Agriculture, which, some may argue, have a goal of promoting agricultural products such as corn.

Ethanol does, according to most studies, leave considerably less of a carbon footprint than fossil fuels. Some studies indicate a 20% to 30% improvement. While Ethanol is a healthier choice, it should be noted it may prove to create problems.  For instance, the price of corn may be affected by the production of ethanol.

ETHANOL & THE MARKETPLACE

Currently just under one half (approximately 40%) of all corn grown in the United States is used to produce ethanol.

That is a significant number when you consider the U.S. grows more corn than any other nation on earth. The USDA projected that between 2012 and 2021 approximately two-thirds (36%) of all corn grown in the United States will be used in ethanol production.  Naturally, this must directly impact grain prices.

To illustrate: Between 1980 and 1990 corn generally sold consistently for around $2.50 per bushel.  But when Ethanol production began in 2000 the market started to change. Since that year the market has seen sharp spikes in the price of corn, reaching an all-time high in 2011.  It is obvious these higher prices were directly due to the increased production of ethanol.

Not only are gas and oil prices volatile — corn prices have started fluctuating, too.  Some argue that ethanol production has also influenced the price of gasoline since about ten percent of the fuel sold in the U.S. is ethanol.  If there were no ethanol a greater amount of gasoline would be necessary. All of this has an impact on the market. 

What we find now is that the volatility of both markets (oil and corn) are intertwined.  A sharp change in the price of either commodity may easily have an adverse effect on the other.

SUBSIDIZING CORN & ETHANOL

Companies in the United States that produce ethanol received a .45 cent subsidy for each gallon produced prior to 2012. Even though that came to an end, there has been no notable reduction in ethanol production.  And today there is still a great deal of debate over how involved the government should become in regulating ethanol production and in subsidizing corn production.

The BOTTOM LINE ON ETHANOL

There are two sides to the ethanol coin.  Ethanol is cleaner burning than fossil fuels and adding ethanol fireplace burner for existing fireplace can be very beneficial.  Ethanol also generally costs less than gasoline — when the price of corn is low.  On the other hand, more ethanol production may mean less corn for food — and that may trigger higher corn prices for the consumer. 

As time goes on, corn farmers will no doubt become more important to the economy. Many scientists predict increasing food shortages throughout the world. Simultaneously, ethanol production will no doubt continue to increase. And even though ethanol produces cleaner energy, there are other clean energy sources that can be used more efficiently.  For instance, solar, wind power and natural gas are cleaner alternatives.

POLITICS IN ETHANOL PRODUCTION

Currently ethanol production is a hot topic in U.S. political circles.  As administrations change from one party to the other, there will no doubt be corresponding changes in the mandates they hand down.  No matter the party in charge, however, ethanol will continue to be a hot topic for several years to come.  Why?  Because ethanol is also a vital fuel choice for other nations.  Brazil, for example, leads the world in the production of cane sugar — another crop that can be used in the production of ethanol.