A biofuel bailout? Don't bother
The government’s $700 billion bailout, designed to get the US economy back on its feet, could soon be extended to the already-bloated corn-ethanol sector. According to Secretary of Agriculture Ed Schafer, the USDA is poised to offer struggling ethanol producers guaranteed loans of up to $25 million apiece in a bid to help them deal with fluctuations in the price of corn.
Ironically, the bailout is necessary not because ethanol producers are having to pay more for the corn they use, but because they’re paying less. Last summer, as corn prices were rising - thanks in part to the government-subsidized diversion of food crops for biofuel feedstocks - ethanol companies sought to speculate on the price of corn, committing to buy vast quantities of the crop at then-current prices.
Unfortunately for the ethanol giants, the economic downturn has had the same effect on corn prices that it’s had on gasoline prices: the grain has slumped from $7 a bushel over the summer to roughly $3.50 a bushel at present. That’s left ethanol companies with big headaches and a whole lot of overpriced corn; one company now predicts it’ll post losses in excess of $100 million in the third quarter alone.
This all sounds pretty similar to causes of the banking crisis: greed, incompetence, blind optimism, lack of regulation and insufficiently hedged bets. Perhaps it’s not surprising, then, that Schafer says that like the banking sector, the ethanol industry is too big and too important to be allowed to fail. “We're going to continue to support it and shore it up as much as we can,” he said last week.
The truth of the matter, though, is that the government is already shoring up the ethanol industry: it’s handed over about $80 billion in subsidies, and created favorable trade barriers that give US producers a $1-a-gallon edge over foreign ethanol companies. Even with those advantages, ethanol giants are struggling to stay out of the red: the six biggest ethanol companies in the US have collectively lost more than $8.7 billion in market value in the past three years.
The bottom line is that biofuels just don’t add up: they aren’t good for the planet, they aren’t good for the economy, and they aren’t going to make us energy independent anytime soon. Bailout, schmailout - it’s past time for the federal government to cut its losses, and stop throwing good money after bad.