Ethanol from Corn Continues to Underwhelm

I've been accused in the past of being a bit of an ethanol basher. That's not true. Ethanol has some potential, provided it's not made from corn.

It's the corn thing that gives me pause. The ethics involved with moving food to fuel, the global impact on rising corn demand on food prices, and questionable energy capability of the kernel make corn (at least in my humble opinion) a less than thrilling alternative fuel source.

Now add to the equation the fact that the price of corn and crude oil have merged. Good article in the Economist on this topic recently. It references Jeff Currie of Goldman Sachs, opinion that planting more corn will not reduce its price:

Since high oil prices and generous government subsidies ensure that biofuels are profitable, any extra grain will be used to make more of the stuff. That will not dent the oil price, since the volumes remain tiny compared with global oil consumption. Instead, the price of biofuels has risen to that of petrol, and the price of corn and crude oil, the main feedstocks for the two, have converged. For grain prices to fall, Mr Currie argues, either governments must pull the plug on biofuels programmes, or the oil price must fall.

Now, is this going to stop people from investing in a corn-based ethanol future? Not a chance. Too much lobbying in the US from agribusiness and financial groups who have staked large bets on corn for it to go away. But as people realize that the performance of corn is underwhelming and does not compete on price, opportunities will arise for other alternatives.