Just One Of Those Corn-y Tales

Remember how ethanol was going to save America?

Less than two years ago, US grain farmers were rubbing their hands with glee at the thought of all the ethanol dollars soon to be pouring into their bank accounts, as a surge in demand for corn meant that, once again, it was fun to be a farmer in America.

In his 2007 State of the Union address, President George W Bush mandated a seven-fold increase in ethanol production. It would, he said, take away US dependence on foreign oil at a time when gas prices were soaring through the forecourt roof.

As a direct result of Bush’s mandate, the ethanol industry borrowed heavily against future profits as it geared up to handle the seven-fold increase demanded by the White House. Farmers shifted production, bought new equipment, and hocked themselves to their bank managers.

A new era of automobile fuel production was about to begin.

Within months, the price of corn skyrocketed. Consumers, already hit by the rising cost of goods due to high oil prices, now found the price of foodstuffs in their local supermarkets rising ever more sharply as corn – this basic commodity of the food industry – became impossibly expensive.

An agricultural industry that for years had developed processed foods based around corn production, that promoted meat products as the “staple American food” (farm animals exist on corn feeds) suddenly found itself unable to supply these commodities at a sustainable price. Not enough corn could be produced to satisfy both the demands of the ethanol and food industries.

It’s hard to know how this crazy, ill-thought-out, situation would have eventually played out, had not one factor come into play that no-one appeared to visualize; certainly not the US government.

In June 2008, oil peaked at over $126 a barrel. By December 2008, it had collapsed back to under $33, taking with it the hopes and dreams of farmers, financiers, and ethanol industry operatives throughout the country.

‘Verasun Energy Corporation’ is an ethanol producer in the US. It was founded in 2001. According to the company’s blurb:

VeraSun Energy Corporation, headquartered in Sioux Falls, S.D., is a leading producer and marketer of ethanol and distillers grains. Founded in 2001, the company has a fleet of 16 production facilities in eight states. VeraSun Energy currently has an annual production capacity potential of approximately 1.64 billion gallons of ethanol and 5 million tons of distillers grains.[1]

In 2006, Verasun was floated on the NY Stock Exchange. In April 2007 it acquired the company, US Bioenergy, thus becoming the biggest ethanol producer in the United States.

Don Endres, CEO of VeraSun, told the Grand Rapids Press back in April 2007:

We are competitive with $115 a barrel for oil, or $3.50 a gallon of gas, at $5 a bushel for corn. We have a lot of runway in front of us.”[2]

An unknown number of Verasun’s “16 production facilities in eight states” now stand idle. In December 2008 the company filed for Chapter 11 bankruptcy.

With oil down around $30, gas below $2, and corn back at $3.50 a bushel, I guess the runway ran out.

Ethanol from corn was never viable, either as a green fuel or a panacea for America’s reliance on imported oil. Ethanol from other vegetative matter may still prove a stop-gap, if it can be made to work economically.

The marriage of corn and ethanol was doomed from the start. Ill conceived economics, coupled with a US president too easily persuaded by greed-induced advisors, meant divorce was inevitable, with all the usual messy consequences.

It will probably never be known just how much effect this farcical episode had on the plunging US economy, how much of the blame can be laid at its door. There is no doubt the sudden food cost increases in the supermarkets, coupled with high gas prices, caused a significant drop in consumer confidence, even before the financial sector fiasco hit the headlines.

All-in-all, it’s yet another heirloom of the George W Bush method of government, to be added to the ever-growing list, that one day will hang like partly unrolled toilet tissue in the grubby restroom of his legacy.

[1] “Verasun Energy website”

[2] “US Bioenergy joins ethanol giant Verasun Energy” Grand Rapids Press, May 6th 2008

NOTE: Sioux Falls, S.D., February 6, 2009 – VeraSun Energy Corporation today announced that the Company filed a Bid Procedures and Sale Motion in the United States Bankruptcy Court for the District of Delaware seeking authority to sell substantially all of the assets of VeraSun Energy Corporation and 24 of its affiliates through a court-approved sale process.

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2 Replies to “Just One Of Those Corn-y Tales”

  1. I’d like to see the little snot clapped in irons in public view for the rest of his born days.
    Along with his puppeteer Unka Dick.
    Such short sighted economic strategies certainly contributed to the current turmoil along with the de-regulated banks et al. Looking at you too Henry Paulsen.
    XO
    WWW

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