Farmers are seeing one of the worst crops in decades. Soybeans and corn are hit particularly hard.
That alone would be enough to raise food prices, but roughly 40% of America’s corn harvest doesn’t go on your plate.
It goes in your gas tank.
A federal law mandates that we increase the use of bio-fuels by 20% by 2022.
The purpose is to lower our use of foreign oil. You mix it with gas, and you need less gas. And, it burns cleaner.
Think of it as a cleaner burning hamburger helper.
But if the helper costs more than the hamburger…does that make sense?
Here in the US, ethanol, is essentially alcohol distilled from corn, yes, like corn liquor.
The blend in the US is usually from 10-15% ethanol, although you can find blends that are only 15% gas in some cities.
And now, nearly 50 stations in Texas sell E85…that is 85% ethanol to only 15% gas.
Probably starting next fall, we’re going to start seeing more E85 out there, because the renewable fuels standards are going to mandate a fair amount of ethanol by 2014.
It used to be only trucks were flex-fuel capable, but now even sedans like this little Buick Verano can handle E85. And how do you tell? Pop the gas cap. It’s yellow. That means it’s flex-fuel.
And it’s nationally about 37 cents cheaper than regular unleaded.
But mileage for any vehicle is roughly 30% poorer.
That means for it to make sense economically, E85 needs to be 71 cents cheaper.
As long as the US makes it out of corn, that is unlikely.
Elsewhere, like Brazil, it is made from sugar cane, grass, sorghum and other cheaper sources that aren’t used cattle feed and human consumption, at least not to the extent that corn is.
And the lack of corn for cattle feed means meat prices are going up as well.
The ethanol program has long been considered a political sop to corn producing states like Iowa and Ohio
But now, the subsidy is gone, the tariff on Brazilian ethanol is gone, so technically, the field is level.