Corn and Ethanol: Food for Thought

I have excerpted a few paragraphs today from John Thomas’s Mad Hedgefund Trader  latesat newsletter. John always has deep and often prescient insights into the workings of markets and their impact on investments and economies. Here is what he has to say about ethanol and its economic impact. The information is clear and chilling.

The irony is that if you include all the upstream and downstream inputs (into the production of ethanol), the process consumes far more energy than it produces. It also demands massive quantities of fresh water, which someday will become more valuable than the oil the ethanol is supposed to replace, turning it into toxic waste.

Few consumers are aware of how big the ethanol industry has grown in such a short period. Ethanol consumption of corn (CORN) has soared from 1.6 billion bushels in 2006 to an anticipated 4.3 billion bushels this year. Ethanol’s share of our total corn crop has skyrocketed from 14% to 33% during the same period. Corn grown for ethanol now occupies 10% of the total arable land in the US!

Ethanol’s impact on food prices has been huge. It is the sole reason why corn is trading at the $4 handle, instead of $2. You also have to add in the inflationary effects on downstream grain consumers, like the food manufacturers and the cattle industry. While spendthrift, obese Americans burn food so they can drive chrome wheeled black Hummers to Walmart, much of Africa and Asia starve. A global food crisis will be the major international political issue of the next decade.”

Of course, all this could be easily avoided if our elected officials actually acted in the best interests of the country and the world. Unfortunately, they rarely ever do.