How ethanol bites you in the wallet

How ethanol bites you in the wallet

It may help at the gas pump, but the ripples emanating from the

ethanol boom are higher prices for corn, fertilizer and the food on

your table. Investors, adjust your portfolios.

http://articles.moneycentral.msn.com/Investing/JubaksJournal/HowEthanolBitesYouInTheWallet.aspx

By Jim Jubak

Ethanol is attractive as a solution to high gasoline prices because it

promises a free lunch:

U.S. farmers would grow corn.

U.S. ethanol companies would turn the corn into ethanol.

U.S. consumers would go about business as usual.

And everyone in the U.S. would be less dependent on foreign oil

producers.

But, repeat after me: There is no free lunch.

So far, this not-so-free lunch has resulted in higher food prices and

rising U.S. dependence on fertilizers produced by, you guessed it,

foreign oil and natural gas producers.

The costs are just starting to work their way through the U.S. and

global economies. But it's none too early for investors to revise

their portfolios to take account of the costs of this free lunch.

On June 4, corn (No. 2 Yellow, Central Illinois) sold for $3.77 a

bushel. A year ago, the price was just $2.25 a bushel. That's a 67%

jump in price in a year. (The futures markets say prices will stay

here, too, with corn for December delivery selling at $3.83 a bushel

on June 4.)

The corn-ethanol price connection

Soaring demand for corn from ethanol producers isn't the only reason

for the price increase, of course. There's rising demand from export

markets for corn to use as animal feed and for human consumption. And

there's increasing demand for corn sweeteners from the food industry.

But there's no getting around the corn-ethanol price connection. Corn

prices are up despite projections of a record 12.5 billion-bushel corn

harvest in the United States this year -- because ethanol producers

will eat up 27% of the U.S. corn crop this year, according to the U.S.

Department of Agriculture. Corn consumption by ethanol producers is

projected to climb to 3.4 billion bushels in 2007, up from 2.2 billion

bushels in 2006, when ethanol producers consumed 20% of the corn crop.

Supplies would be even tighter if high corn prices hadn't deterred

some buyers. Corn exports, the U.S. Department of Agriculture says,

are expected to drop by 10% in 2007. And corn purchases for animal

feed will drop 3%.

The soybean and grain markets

The high price of corn has had a ripple effect on the price of other

farm commodities, too. With corn so profitable to plant, farmers have

shifted acreage from soybeans, for example, to corn. In 2007, the

acreage planted in corn will grow by 16% from 2006, while the acreage

planted in soybeans will fall by 11%. So it's not especially

surprising that the price of a bushel of soybeans was up 36% as of

June 4 from a year earlier. (Corn isn't just displacing food crops,

either. In the southern U.S., the acreage planted in cotton is down

20% in 2007 as farmers switched to planting corn.)

And the ripples haven't stopped with the grain markets. The U.S. food

industry is largely built on corn. It feeds the chickens, pigs and

cows that wind up on our dinner tables. It's the source of the

sweeteners in everything from soda to cookies to bread. And it's

processed into starch for use in candies, soups, cake mixes, baked

goods and, in the general economy, into plastic, paper, adhesives and

textiles.

Food prices on the rise

So if the price of corn is up, you'd expect the price of everything to

be up. And so it is. If you grilled steak on this past Memorial Day,

it cost 5.5% more than a year ago, according to the U.S. Labor

Department. Think you can escape by barbecuing chicken? Forget it.

Whole chickens cost 7.7% more than they did in May 2006. Milk and

cheese are up, too, since corn makes up the bulk of a dairy cow's

diet. Milk prices are up about 3% from a year ago, or about 10 cents a

gallon, according to the U.S. Department of Agriculture. But higher

costs could push up the price of a gallon of milk by an additional 40

cents in the next few months to a national average of $3.78 a gallon.

And those annual rates of increase understate the spike in prices so

far in 2007. In the first quarter of 2007, raw milk prices were up

23%, for example.

OPEC is threatening to cut investment in production and drive up the

price of oil if industrialized economies don't stop investing in

biofuels. MSN Money's Jim Jubak says it's nothing more than an empty

threat -- and that investors should call OPEC's bluff.

And so far in 2007, food inflation in the United States is running at

an annual rate of 6.7%. If that rate holds for the entire year, that

would be the fastest rate of increase in food prices since 1980.

Continued: Price inflation abroad

Price inflation abroad

The effects of higher corn prices don't stop at the U.S. border. In

fact, higher prices are hurting consumers in poorer countries more

than more affluent consumers in the United States. Food price

inflation is running higher in developing economies than in the United

States, and in those countries food takes up a bigger part of the

family budget. Food-price inflation was running at 6.2% in China in

the first quarter of 2007 and 11% in India, for example. In the United

States, food makes up only about 15% of the shopping basket that the

U.S. Commerce Department uses to calculate the Consumer Price Index.

In Thailand, food makes up 35% of that basket. In the Philippines,

it's 50%.

The decision to promote corn-based ethanol as part of our national

energy policy (if you can call it that) has imposed other costs on the

economy, as well. Since ethanol is too corrosive to ship through

existing pipelines, it has to be delivered from refinery to consumer

by truck or rail. It's also necessary to ship corn to the ethanol

refinery and, then to ship what remains after the starch has been

extracted from the corn kernel to disposal sites or back to farms for

use as feed. All of that extra hauling has put more pressure on U.S.

rail lines that are already struggling with too much traffic running

on too many single-tracked lines.

Where's the fertilizer?

And that 16% increase in the acreage planted to corn has also produced

a big surge in U.S. fertilizer demand -- as much as an extra 1 million

metric tons this year. (The shift from soybeans to corn also increases

demand for fertilizer, since soybeans can fix nitrogen from the

atmosphere and require less nitrogen fertilizer than corn.)

The supply to meet that extra demand won't come cheap, since

nitrogen-based fertilizer prices are near record highs. Prices are

projected to average $365 a metric ton in 2007, up from $270 a ton in

2006, an increase of 35%.

Much of that fertilizer will be imported, too. It takes natural gas to

produce nitrogen fertilizers. High natural-gas prices have driven most

U.S. producers out of the business, leaving nitrogen fertilizer

production to countries such as Trinidad and Tobago, Russia and,

surprise, Saudi Arabia. The U.S. Geological Survey calculates that in

2005 the United States imported 21% of the urea it turns into nitrogen

fertilizer from Saudi Arabia and Qatar.

A game plan for investors

So where does this all leave investors?

Buying the shares of farm-equipment makers, such as Deere (DE, news,

msgs), since whatever its net effect on the economy as a whole,

ethanol is clearly good for farm incomes.

Buying the shares of fertilizer makers such as Potash Corporation of

Saskatchewan (POT, news, msgs) and Yara International (YARIY, news,

msgs).

Buying the shares of agricultural commodity traders such as Archer

Daniels Midland (ADM, news, msgs) that have the ability to arbitrage

prices between commodities and geographies.

Selling the shares of food-processing companies, such as Kellogg (K,

news, msgs), Nestle (NSRGY, news, msgs), Hershey (HSY, news, msgs) and

PepsiCo (PEP, news, msgs), that are getting squeezed by rising

commodity prices for key ingredients such as corn, corn sweetener,

milk and cheese. And staying neutral on ethanol producers themselves.

Government subsidies for ethanol production have brought too many

companies too quickly into the industry. A consolidation, fueled by

high corn prices and bottlenecks in the distribution system that make

it hard to get ethanol to market in many areas of the country, has

just started.

And the technology questions still remain to be answered.

Brace yourself

Can the corn-based ethanol industry find a way to solve its corn-price

problem by turning more of what remains after ethanol production into

animal feed? (Currently, that "waste product," DDGS, or distillers

dried grain with solubles, has too much oil to be easily digested by

many farm animals.)

Will the technology for making ethanol from plant cellulose, such as

the switchgrass so often mentioned by President Bush, evolve from test

project to commercial viability any time soon?

Corn-based ethanol yields only marginally more energy (optimistically)

than it consumes in production, and it requires so much corn that

reaching the administration's lofty production goals is unlikely. Yet

despite all its faults, corn-based ethanol is here to stay, at least

for the next five years or so. The political logrolling that passes

for energy policy in Washington -- you vote subsidies for ethanol,

I'll vote subsidies for "clean" coal -- just about guarantees that.

So you might as well prepare your portfolio for the consequences.

--

There may come a time when the CO2 police will wander the earth telling

the poor and the dispossed how many dung chips they can put on their

cook fires. -- Captain Compassion.

Wherever I go it will be well with me, for it was well with me here, not

on account of the place, but of my judgments which I shall carry away

with me, for no one can deprive me of these; on the contrary, they alone

are my property, and cannot be taken away, and to possess them suffices

me wherever I am or whatever I do. -- EPICTETUS

Celibacy in healthy human beings is a form of

insanity. -- Captain Compassion

"Civilization is the interval between Ice Ages." -- Will Durant.

Joseph R. Darancette

daranc@NOSPAMcharter.net

On Jun 10, 1:40 pm, Captain Compassion <dar...@NOSPAMcharter.net>

wrote:

> How ethanol bites you in the wallet

> It may help at the gas pump, but the ripples emanating from the

> ethanol boom are higher prices for corn, fertilizer and the food on

> your table. Investors, adjust your portfolios.http://articles.moneycentral.msn.com/Investing/JubaksJournal/HowEthan...

>

> By Jim Jubak

>

> Ethanol is attractive as a solution to high gasoline prices because it

> promises a free lunch:

>

> U.S. farmers would grow corn.

> U.S. ethanol companies would turn the corn into ethanol.

> U.S. consumers would go about business as usual.

> And everyone in the U.S. would be less dependent on foreign oil

> producers.

>

> But, repeat after me: There is no free lunch.

>

> So far, this not-so-free lunch has resulted in higher food prices and

> rising U.S. dependence on fertilizers produced by, you guessed it,

> foreign oil and natural gas producers.

>

> The costs are just starting to work their way through the U.S. and

> global economies. But it's none too early for investors to revise

> their portfolios to take account of the costs of this free lunch.

>

> On June 4, corn (No. 2 Yellow, Central Illinois) sold for $3.77 a

> bushel. A year ago, the price was just $2.25 a bushel. That's a 67%

> jump in price in a year. (The futures markets say prices will stay

> here, too, with corn for December delivery selling at $3.83 a bushel

> on June 4.)

>

> The corn-ethanol price connection

>

> Soaring demand for corn from ethanol producers isn't the only reason

> for the price increase, of course. There's rising demand from export

> markets for corn to use as animal feed and for human consumption. And

> there's increasing demand for corn sweeteners from the food industry.

>

> But there's no getting around the corn-ethanol price connection. Corn

> prices are up despite projections of a record 12.5 billion-bushel corn

> harvest in the United States this year -- because ethanol producers

> will eat up 27% of the U.S. corn crop this year, according to the U.S.

> Department of Agriculture. Corn consumption by ethanol producers is

> projected to climb to 3.4 billion bushels in 2007, up from 2.2 billion

> bushels in 2006, when ethanol producers consumed 20% of the corn crop.

>

> Supplies would be even tighter if high corn prices hadn't deterred

> some buyers. Corn exports, the U.S. Department of Agriculture says,

> are expected to drop by 10% in 2007. And corn purchases for animal

> feed will drop 3%.

>

> The soybean and grain markets

>

> The high price of corn has had a ripple effect on the price of other

> farm commodities, too. With corn so profitable to plant, farmers have

> shifted acreage from soybeans, for example, to corn. In 2007, the

> acreage planted in corn will grow by 16% from 2006, while the acreage

> planted in soybeans will fall by 11%. So it's not especially

> surprising that the price of a bushel of soybeans was up 36% as of

> June 4 from a year earlier. (Corn isn't just displacing food crops,

> either. In the southern U.S., the acreage planted in cotton is down

> 20% in 2007 as farmers switched to planting corn.)

>

> And the ripples haven't stopped with the grain markets. The U.S. food

> industry is largely built on corn. It feeds the chickens, pigs and

> cows that wind up on our dinner tables. It's the source of the

> sweeteners in everything from soda to cookies to bread. And it's

> processed into starch for use in candies, soups, cake mixes, baked

> goods and, in the general economy, into plastic, paper, adhesives and

> textiles.

>

> Food prices on the rise

>

> So if the price of corn is up, you'd expect the price of everything to

> be up. And so it is. If you grilled steak on this past Memorial Day,

> it cost 5.5% more than a year ago, according to the U.S. Labor

> Department. Think you can escape by barbecuing chicken? Forget it.

> Whole chickens cost 7.7% more than they did in May 2006. Milk and

> cheese are up, too, since corn makes up the bulk of a dairy cow's

> diet. Milk prices are up about 3% from a year ago, or about 10 cents a

> gallon, according to the U.S. Department of Agriculture. But higher

> costs could push up the price of a gallon of milk by an additional 40

> cents in the next few months to a national average of $3.78 a gallon.

>

> And those annual rates of increase understate the spike in prices so

> far in 2007. In the first quarter of 2007, raw milk prices were up

> 23%, for example.

>

> OPEC is threatening to cut investment in production and drive up the

> price of oil if industrialized economies don't stop investing in

> biofuels. MSN Money's Jim Jubak says it's nothing more than an empty

> threat -- and that investors should call OPEC's bluff.

>

> And so far in 2007, food inflation in the United States is running at

> an annual rate of 6.7%. If that rate holds for the entire year, that

> would be the fastest rate of increase in food prices since 1980.

>

> Continued: Price inflation abroad

>

> Price inflation abroad

>

> The effects of higher corn prices don't stop at the U.S. border. In

> fact, higher prices are hurting consumers in poorer countries more

> than more affluent consumers in the United States. Food price

> inflation is running higher in developing economies than in the United

> States, and in those countries food takes up a bigger part of the

> family budget. Food-price inflation was running at 6.2% in China in

> the first quarter of 2007 and 11% in India, for example. In the United

> States, food makes up only about 15% of the shopping basket that the

> U.S. Commerce Department uses to calculate the Consumer Price Index.

> In Thailand, food makes up 35% of that basket. In the Philippines,

> it's 50%.

>

> The decision to promote corn-based ethanol as part of our national

> energy policy (if you can call it that) has imposed other costs on the

> economy, as well. Since ethanol is too corrosive to ship through

> existing pipelines, it has to be delivered from refinery to consumer

> by truck or rail. It's also necessary to ship corn to the ethanol

> refinery and, then to ship what remains after the starch has been

> extracted from the corn kernel to disposal sites or back to farms for

> use as feed. All of that extra hauling has put more pressure on U.S.

> rail lines that are already struggling with too much traffic running

> on too many single-tracked lines.

>

> Where's the fertilizer?

>

> And that 16% increase in the acreage planted to corn has also produced

> a big surge in U.S. fertilizer demand -- as much as an extra 1 million

> metric tons this year. (The shift from soybeans to corn also increases

> demand for fertilizer, since soybeans can fix nitrogen from the

> atmosphere and require less nitrogen fertilizer than corn.)

>

> The supply to meet that extra demand won't come cheap, since

> nitrogen-based fertilizer prices are near record highs. Prices are

> projected to average $365 a metric ton in 2007, up from $270 a ton in

> 2006, an increase of 35%.

>

> Much of that fertilizer will be imported, too. It takes natural gas to

> produce nitrogen fertilizers. High natural-gas prices have driven most

> U.S. producers out of the business, leaving nitrogen fertilizer

> production to countries such as Trinidad and Tobago, Russia and,

> surprise, Saudi Arabia. The U.S. Geological Survey calculates that in

> 2005 the United States imported 21% of the urea it turns into nitrogen

> fertilizer from Saudi Arabia and Qatar.

>

> A game plan for investors

>

> So where does this all leave investors?

>

> Buying the shares of farm-equipment makers, such as Deere (DE, news,

> msgs), since whatever its net effect on the economy as a whole,

> ethanol is clearly good for farm incomes.

> Buying the shares of fertilizer makers such as Potash Corporation of

> Saskatchewan (POT, news, msgs) and Yara International (YARIY, news,

> msgs).

>

> Buying the shares of agricultural commodity traders such as Archer

> Daniels Midland (ADM, news, msgs) that have the ability to arbitrage

> prices between commodities and geographies.

> Selling the shares of food-processing companies, such as Kellogg (K,

> news, msgs), Nestle (NSRGY, news, msgs), Hershey (HSY, news, msgs) and

> PepsiCo (PEP, news, msgs), that are getting squeezed by rising

> commodity prices for key ingredients such as corn, corn sweetener,

> milk and cheese. And staying neutral on ethanol producers themselves.

> Government subsidies for ethanol production have brought too many

> companies too quickly into the industry. A consolidation, fueled by

> high corn prices and bottlenecks in the distribution system that make

> it hard to get ethanol to market in many areas of the country, has

> just started.

>

> And the technology questions still remain to be answered.

>

> Brace yourself

>

> Can the corn-based ethanol industry find a way to solve its corn-price

> problem by turning more of what remains after ethanol production into

> animal feed? (Currently, that "waste product," DDGS, or distillers

> dried grain with solubles, has too much oil to be easily digested by

> many farm animals.)

>

> Will the technology for making ethanol from plant cellulose, such as

> the switchgrass so often mentioned by President Bush, evolve from test

> project to commercial viability any time soon?

>

> Corn-based ethanol yields only marginally more energy (optimistically)

> than it consumes in production, and it requires so much corn that

> reaching the administration's lofty production goals is unlikely. Yet

> despite all its faults, corn-based ethanol is here to stay, at least

> for the next five years or so. The political logrolling that passes

> for energy policy in Washington -- you vote subsidies for ethanol,

> I'll vote subsidies for "clean" coal -- just about guarantees that.

>

> So you might as well prepare your portfolio for the consequences.

>

> --

> There may come a time when the CO2 police will wander the earth telling

> the poor and the dispossed how many dung chips they can put on their

> cook fires. -- Captain Compassion.

>

> Wherever I go it will be well with me, for it was well with me here, not

> on account of the place, but of my judgments which I shall carry away

> with me, for no one can deprive me of these; on the contrary, they alone

> are my property, and cannot be taken away, and to possess them suffices

> me wherever I am or whatever I do. -- EPICTETUS

>

> Celibacy in healthy human beings is a form of

> insanity. -- Captain Compassion

>

> "Civilization is the interval between Ice Ages." -- Will Durant.

>

> Joseph R. Darancette

> dar...@NOSPAMcharter.net

So -- you're great at attacking proposals and nay-saying. How about

you tell us something POSITIVE to do in the search for alternatives to

petroleum??

Remember -- oil shale, tar sands, drilling ANWR, and drilling the Gulf

of Mexico are but drops in the bucket and will solve nothing.

Your turn.

On Jun 10, 10:46 am, Spiritus Sanctus <innominepa...@hotmail.com>

wrote:

> So -- you're great at attacking proposals and nay-saying. How about

> you tell us something POSITIVE to do in the search for alternatives to

> petroleum??

>

> Remember -- oil shale, tar sands, drilling ANWR, and drilling the Gulf

> of Mexico are but drops in the bucket and will solve nothing.

>

> Your turn.

Cap'n (Crododile Tears) Compassion is now vested in canadian oil

shale..

It makes great economic sense for him to run down competing products..

As always the open market will decide the viability of corn ethanol vs

imported oil.

Myself, I would suspect that importing commie chinese corn will be a

lot cheaper than importing oil... if it ever comes to such a decision.

But corn ethanol is only one option.

Ethanol from cellulous is waiting in the wings, as is biodiesel.

On Sun, 10 Jun 2007 10:46:52 -0700, Spiritus Sanctus

<innominepatre@hotmail.com> wrote:

>On Jun 10, 1:40 pm, Captain Compassion <dar...@NOSPAMcharter.net>

>wrote:

>> How ethanol bites you in the wallet

>> It may help at the gas pump, but the ripples emanating from the

>> ethanol boom are higher prices for corn, fertilizer and the food on

>> your table. Investors, adjust your portfolios.http://articles.moneycentral.msn.com/Investing/JubaksJournal/HowEthan...

>>

>> By Jim Jubak

>>

>> Ethanol is attractive as a solution to high gasoline prices because it

>> promises a free lunch:

>>

>> U.S. farmers would grow corn.

>> U.S. ethanol companies would turn the corn into ethanol.

>> U.S. consumers would go about business as usual.

>> And everyone in the U.S. would be less dependent on foreign oil

>> producers.

>>

>> But, repeat after me: There is no free lunch.

>>

>> So far, this not-so-free lunch has resulted in higher food prices and

>> rising U.S. dependence on fertilizers produced by, you guessed it,

>> foreign oil and natural gas producers.

>>

>> The costs are just starting to work their way through the U.S. and

>> global economies. But it's none too early for investors to revise

>> their portfolios to take account of the costs of this free lunch.

>>

>> On June 4, corn (No. 2 Yellow, Central Illinois) sold for $3.77 a

>> bushel. A year ago, the price was just $2.25 a bushel. That's a 67%

>> jump in price in a year. (The futures markets say prices will stay

>> here, too, with corn for December delivery selling at $3.83 a bushel

>> on June 4.)

>>

>> The corn-ethanol price connection

>>

>> Soaring demand for corn from ethanol producers isn't the only reason

>> for the price increase, of course. There's rising demand from export

>> markets for corn to use as animal feed and for human consumption. And

>> there's increasing demand for corn sweeteners from the food industry.

>>

>> But there's no getting around the corn-ethanol price connection. Corn

>> prices are up despite projections of a record 12.5 billion-bushel corn

>> harvest in the United States this year -- because ethanol producers

>> will eat up 27% of the U.S. corn crop this year, according to the U.S.

>> Department of Agriculture. Corn consumption by ethanol producers is

>> projected to climb to 3.4 billion bushels in 2007, up from 2.2 billion

>> bushels in 2006, when ethanol producers consumed 20% of the corn crop.

>>

>> Supplies would be even tighter if high corn prices hadn't deterred

>> some buyers. Corn exports, the U.S. Department of Agriculture says,

>> are expected to drop by 10% in 2007. And corn purchases for animal

>> feed will drop 3%.

>>

>> The soybean and grain markets

>>

>> The high price of corn has had a ripple effect on the price of other

>> farm commodities, too. With corn so profitable to plant, farmers have

>> shifted acreage from soybeans, for example, to corn. In 2007, the

>> acreage planted in corn will grow by 16% from 2006, while the acreage

>> planted in soybeans will fall by 11%. So it's not especially

>> surprising that the price of a bushel of soybeans was up 36% as of

>> June 4 from a year earlier. (Corn isn't just displacing food crops,

>> either. In the southern U.S., the acreage planted in cotton is down

>> 20% in 2007 as farmers switched to planting corn.)

>>

>> And the ripples haven't stopped with the grain markets. The U.S. food

>> industry is largely built on corn. It feeds the chickens, pigs and

>> cows that wind up on our dinner tables. It's the source of the

>> sweeteners in everything from soda to cookies to bread. And it's

>> processed into starch for use in candies, soups, cake mixes, baked

>> goods and, in the general economy, into plastic, paper, adhesives and

>> textiles.

>>

>> Food prices on the rise

>>

>> So if the price of corn is up, you'd expect the price of everything to

>> be up. And so it is. If you grilled steak on this past Memorial Day,

>> it cost 5.5% more than a year ago, according to the U.S. Labor

>> Department. Think you can escape by barbecuing chicken? Forget it.

>> Whole chickens cost 7.7% more than they did in May 2006. Milk and

>> cheese are up, too, since corn makes up the bulk of a dairy cow's

>> diet. Milk prices are up about 3% from a year ago, or about 10 cents a

>> gallon, according to the U.S. Department of Agriculture. But higher

>> costs could push up the price of a gallon of milk by an additional 40

>> cents in the next few months to a national average of $3.78 a gallon.

>>

>> And those annual rates of increase understate the spike in prices so

>> far in 2007. In the first quarter of 2007, raw milk prices were up

>> 23%, for example.

>>

>> OPEC is threatening to cut investment in production and drive up the

>> price of oil if industrialized economies don't stop investing in

>> biofuels. MSN Money's Jim Jubak says it's nothing more than an empty

>> threat -- and that investors should call OPEC's bluff.

>>

>> And so far in 2007, food inflation in the United States is running at

>> an annual rate of 6.7%. If that rate holds for the entire year, that

>> would be the fastest rate of increase in food prices since 1980.

>>

>> Continued: Price inflation abroad

>>

>> Price inflation abroad

>>

>> The effects of higher corn prices don't stop at the U.S. border. In

>> fact, higher prices are hurting consumers in poorer countries more

>> than more affluent consumers in the United States. Food price

>> inflation is running higher in developing economies than in the United

>> States, and in those countries food takes up a bigger part of the

>> family budget. Food-price inflation was running at 6.2% in China in

>> the first quarter of 2007 and 11% in India, for example. In the United

>> States, food makes up only about 15% of the shopping basket that the

>> U.S. Commerce Department uses to calculate the Consumer Price Index.

>> In Thailand, food makes up 35% of that basket. In the Philippines,

>> it's 50%.

>>

>> The decision to promote corn-based ethanol as part of our national

>> energy policy (if you can call it that) has imposed other costs on the

>> economy, as well. Since ethanol is too corrosive to ship through

>> existing pipelines, it has to be delivered from refinery to consumer

>> by truck or rail. It's also necessary to ship corn to the ethanol

>> refinery and, then to ship what remains after the starch has been

>> extracted from the corn kernel to disposal sites or back to farms for

>> use as feed. All of that extra hauling has put more pressure on U.S.

>> rail lines that are already struggling with too much traffic running

>> on too many single-tracked lines.

>>

>> Where's the fertilizer?

>>

>> And that 16% increase in the acreage planted to corn has also produced

>> a big surge in U.S. fertilizer demand -- as much as an extra 1 million

>> metric tons this year. (The shift from soybeans to corn also increases

>> demand for fertilizer, since soybeans can fix nitrogen from the

>> atmosphere and require less nitrogen fertilizer than corn.)

>>

>> The supply to meet that extra demand won't come cheap, since

>> nitrogen-based fertilizer prices are near record highs. Prices are

>> projected to average $365 a metric ton in 2007, up from $270 a ton in

>> 2006, an increase of 35%.

>>

>> Much of that fertilizer will be imported, too. It takes natural gas to

>> produce nitrogen fertilizers. High natural-gas prices have driven most

>> U.S. producers out of the business, leaving nitrogen fertilizer

>> production to countries such as Trinidad and Tobago, Russia and,

>> surprise, Saudi Arabia. The U.S. Geological Survey calculates that in

>> 2005 the United States imported 21% of the urea it turns into nitrogen

>> fertilizer from Saudi Arabia and Qatar.

>>

>> A game plan for investors

>>

>> So where does this all leave investors?

>>

>> Buying the shares of farm-equipment makers, such as Deere (DE, news,

>> msgs), since whatever its net effect on the economy as a whole,

>> ethanol is clearly good for farm incomes.

>> Buying the shares of fertilizer makers such as Potash Corporation of

>> Saskatchewan (POT, news, msgs) and Yara International (YARIY, news,

>> msgs).

>>

>> Buying the shares of agricultural commodity traders such as Archer

>> Daniels Midland (ADM, news, msgs) that have the ability to arbitrage

>> prices between commodities and geographies.

>> Selling the shares of food-processing companies, such as Kellogg (K,

>> news, msgs), Nestle (NSRGY, news, msgs), Hershey (HSY, news, msgs) and

>> PepsiCo (PEP, news, msgs), that are getting squeezed by rising

>> commodity prices for key ingredients such as corn, corn sweetener,

>> milk and cheese. And staying neutral on ethanol producers themselves.

>> Government subsidies for ethanol production have brought too many

>> companies too quickly into the industry. A consolidation, fueled by

>> high corn prices and bottlenecks in the distribution system that make

>> it hard to get ethanol to market in many areas of the country, has

>> just started.

>>

>> And the technology questions still remain to be answered.

>>

>> Brace yourself

>>

>> Can the corn-based ethanol industry find a way to solve its corn-price

>> problem by turning more of what remains after ethanol production into

>> animal feed? (Currently, that "waste product," DDGS, or distillers

>> dried grain with solubles, has too much oil to be easily digested by

>> many farm animals.)

>>

>> Will the technology for making ethanol from plant cellulose, such as

>> the switchgrass so often mentioned by President Bush, evolve from test

>> project to commercial viability any time soon?

>>

>> Corn-based ethanol yields only marginally more energy (optimistically)

>> than it consumes in production, and it requires so much corn that

>> reaching the administration's lofty production goals is unlikely. Yet

>> despite all its faults, corn-based ethanol is here to stay, at least

>> for the next five years or so. The political logrolling that passes

>> for energy policy in Washington -- you vote subsidies for ethanol,

>> I'll vote subsidies for "clean" coal -- just about guarantees that.

>>

>> So you might as well prepare your portfolio for the consequences.

>>

>> --

>> There may come a time when the CO2 police will wander the earth telling

>> the poor and the dispossed how many dung chips they can put on their

>> cook fires. -- Captain Compassion.

>>

>> Wherever I go it will be well with me, for it was well with me here, not

>> on account of the place, but of my judgments which I shall carry away

>> with me, for no one can deprive me of these; on the contrary, they alone

>> are my property, and cannot be taken away, and to possess them suffices

>> me wherever I am or whatever I do. -- EPICTETUS

>>

>> Celibacy in healthy human beings is a form of

>> insanity. -- Captain Compassion

>>

>> "Civilization is the interval between Ice Ages." -- Will Durant.

>>

>> Joseph R. Darancette

>> dar...@NOSPAMcharter.net

>

>

>So -- you're great at attacking proposals and nay-saying. How about

>you tell us something POSITIVE to do in the search for alternatives to

>petroleum??

>

>Remember -- oil shale, tar sands, drilling ANWR, and drilling the Gulf

>of Mexico are but drops in the bucket and will solve nothing.

>

>Your turn.

>

There is only one real answer. Destroy humanity. The above things plus

others are merely compromises. I can live with that.

--

There may come a time when the CO2 police will wander the earth telling

the poor and the dispossed how many dung chips they can put on their

cook fires. -- Captain Compassion.

Wherever I go it will be well with me, for it was well with me here, not

on account of the place, but of my judgments which I shall carry away

with me, for no one can deprive me of these; on the contrary, they alone

are my property, and cannot be taken away, and to possess them suffices

me wherever I am or whatever I do. -- EPICTETUS

Celibacy in healthy human beings is a form of

insanity. -- Captain Compassion

"Civilization is the interval between Ice Ages." -- Will Durant.

Joseph R. Darancette

daranc@NOSPAMcharter.net

On Sun, 10 Jun 2007 11:00:41 -0700, lorad474@cs.com wrote:

>On Jun 10, 10:46 am, Spiritus Sanctus <innominepa...@hotmail.com>

>wrote:

>> So -- you're great at attacking proposals and nay-saying. How about

>> you tell us something POSITIVE to do in the search for alternatives to

>> petroleum??

>>

>> Remember -- oil shale, tar sands, drilling ANWR, and drilling the Gulf

>> of Mexico are but drops in the bucket and will solve nothing.

>>

>> Your turn.

>

>Cap'n (Crododile Tears) Compassion is now vested in canadian oil

>shale..

Canada has tar sand not oil shale.

>It makes great economic sense for him to run down competing products..

>

>As always the open market will decide the viability of corn ethanol vs

>imported oil.

>Myself, I would suspect that importing commie chinese corn will be a

>lot cheaper than importing oil... if it ever comes to such a decision.

>

>But corn ethanol is only one option.

>Ethanol from cellulous is waiting in the wings, as is biodiesel.

>

>

No skin off my teeth. I can affords corn at $3 an ear and pork chops

at $20 a pound. To hell with the poor and the brown. Let them eat

gruel.

--

There may come a time when the CO2 police will wander the earth telling

the poor and the dispossed how many dung chips they can put on their

cook fires. -- Captain Compassion.

Wherever I go it will be well with me, for it was well with me here, not

on account of the place, but of my judgments which I shall carry away

with me, for no one can deprive me of these; on the contrary, they alone

are my property, and cannot be taken away, and to possess them suffices

me wherever I am or whatever I do. -- EPICTETUS

Celibacy in healthy human beings is a form of

insanity. -- Captain Compassion

"Civilization is the interval between Ice Ages." -- Will Durant.

Joseph R. Darancette

daranc@NOSPAMcharter.net

Captain Compassion wrote:

> How ethanol bites you in the wallet

> It may help at the gas pump, but the ripples emanating from the

> ethanol boom are higher prices for corn, fertilizer and the food on

> your table. Investors, adjust your portfolios.

> http://articles.moneycentral.msn.com/Investing/JubaksJournal/HowEthanolBitesYouInTheWallet.aspx

>

> By Jim Jubak

>

> Ethanol is attractive as a solution to high gasoline prices because it

> promises a free lunch:

>

> U.S. farmers would grow corn.

> U.S. ethanol companies would turn the corn into ethanol.

> U.S. consumers would go about business as usual.

> And everyone in the U.S. would be less dependent on foreign oil

> producers.

>

> But, repeat after me: There is no free lunch.

>

> So far, this not-so-free lunch has resulted in higher food prices and

> rising U.S. dependence on fertilizers produced by, you guessed it,

> foreign oil and natural gas producers.

>

> The costs are just starting to work their way through the U.S. and

> global economies. But it's none too early for investors to revise

> their portfolios to take account of the costs of this free lunch.

>

No question, food prices have skyrocketed the past year. The real

solution is to reduce consumption of oil and that can be easily

accomplished by simple things like lower speed limits and financial

penalties based on the weight of the vehicle. But that would involve the

dreaded LIFE STYLE CHANGE and boobus americanus will not accept that.

<lorad474@cs.com> wrote in message

news:1181498441.786350.87540@p77g2000hsh.googlegroups.com...

> On Jun 10, 10:46 am, Spiritus Sanctus <innominepa...@hotmail.com>

> wrote:

>> So -- you're great at attacking proposals and nay-saying. How about

>> you tell us something POSITIVE to do in the search for alternatives to

>> petroleum??

>>

>> Remember -- oil shale, tar sands, drilling ANWR, and drilling the Gulf

>> of Mexico are but drops in the bucket and will solve nothing.

>>

>> Your turn.

>

> Cap'n (Crododile Tears) Compassion is now vested in canadian oil

> shale..

> It makes great economic sense for him to run down competing products..

>

> As always the open market will decide the viability of corn ethanol vs

> imported oil.

> Myself, I would suspect that importing commie chinese corn will be a

> lot cheaper than importing oil... if it ever comes to such a decision.

>

> But corn ethanol is only one option.

> Ethanol from cellulous is waiting in the wings, as is biodiesel.

>

What I think is going to happen is a much wider range of transportation

options. For instance mag-lev trains to connect cities with less than 250

km distance rather than airplanes. A wide range of rentable cars, some

people don't need to own a car, they'd rent the size they need for the time

they need it. Conventional trains for around town travel and trolley cars

for short distances. Planes would be used for long distance, say east coast

to west cost, travel.

The French recently achieved a 440Km/hr + speed with one of their bullet

trains, fully loaded. The passengerw were toasting the new record with

champagne as the record was broken.