William Eng
May 30th, 2008, 11:31 AM
We were in Gillespie, Illinois, about two months ago. We live in a Chicagoland suburb, so going to Gillespie for a day trip was literally going back to the farms. Gillespie is a small town about an hour or so northeast of a smaller metropolis, St. Louis, Illinois.
Gillespie is all about midestern farming. Yep, they grow a lot of corn and a lot of soybeans.
Everywhere we saw in Gillespie gave the odor of money, and lots of it. The years of runup in grain prices have enriched our local farmers, and since grains are consumed worldwide, the farmers throughout the world. Not only are midwestern farmers finding lots of profits, farmers from as far away as Brazil and Chile are finding a motherload of money in their own backyards.
Now, you're wondering to yourself, what does the farmers' wealth have anything to do with ethanol and the price of gasoline?
I think for a living, and I think I do pretty well at it. Let's think a bit.
The Europeans have been complaining and even publicly demonstating about the high price of gasoline. In France, a gallon of gasoline is $8.20 (as of May 30, 2008). Compare that to the price in the US: about $4.15 a gallon of unleaded. The price of gasoline in Europe is double what it is in the US. The difference in pricing between the European countries and the US is the much higher fuel consumption tax imposed in Europe. In many countries, the additional difference is attributable to government taxes. We can say that about $4 of the $8.20 for a gallon of gasoline in France is a fuel tax imposed on the buyer. In the US, the government tax is about $0.47 per gallon of regular gasoline (for diesel it's about $0.54 per gallon).
So, why the lower fuel tax in the US? And why is the US pushing for the use of ethanol gasoline, which is a blend of gasoline and ethanol which is produced from edible corn?
Indeed, why do we need to "burn" corn when the world can eat corn? Isn't there a food shortage throughout the world? There have been recent food demonstrations, even riots, about the high prices of grains. And now, the US has created a flawed policy in mandating that corn be used for ethanol production?
The use of grains for the creation of ethanol to be blended into gasoline was first demonstrated in Brazil about 30 years prior to the US implementing the same strategy. The problem with the US is we're using corn, instead of what the Brazilians used: sugar cane. (The waste which is the residual bagasse is burnt for heat and power.) The US uses it's corn. The problem currently for the world of grain eaters is that corn can be used for more purposes of sustaining life than sugar cane. I mean, can you imagine eating sugar cane every day? Wouldn't you prefer corn every other day?
Neverthless, Brazil and the US account for about 70% of the world's production of ethanol. In Brazil, sugar cane is used. In the US, corn is used.
Now, what ramifications are there for the US? Many, and most of them are very good. Good for the farmers, good for the consumers, and good for the US.
Unlike the Europeans, where the price of a gallon of gasoline goes to the source of the gasoline (the Middle East) and the respective European government, in the US, the breakdown is different. The price of a gallon of gasoline in the US goes to the source -- the Middle East AND the farmers and their peripheral supporting infrastructure -- and then a less than 15% as a fuel tax to the US and statutory and municipal governments.
When the Brazilians manufacture ethanol, industry sources have reported 700,000 jobs existed in 2003 related to the production of ethanol. Eventually, the jobs created from continued creation of ethanol alcohol in the US will surpass that number. An implication is there will be more jobs in the US than there will be in the Middle East, or wherever the source of oil will be in the near future. The use of ethanol in Brazil also cut down the importation of oil from 1975-2002 by at leat $50 billion US.
In the US, which is too far north of the tropical weather zone, farmers cannot grow sugar cane. Hawaii is the only state that can grow sugar cane. Here's a clue to my readers as where the next possible investment opportunity can be. In March 2007, President George Bush toured Latin America and visited Brazil's president, Luiz Inacio Lula da Silva. The two countries agreed to share technology and set international standards for biofuels. Reading between the lines, the two countries will promote the production of sugar cane ethanol throughout Latin America AND the Caribbean. From a Wikipedia article:
The Brazilian sugar cane technology transfer will permit various Central American, such as Honduras, Nicaragua, Costa Rica and Panama, several Caribbean countries, and various Andean Countries tariff-free trade with the U.S. thanks to existing concessionary trade agreements. Even though the U.S. imposes a USD 0.54 tariff on every gallon of imported ethanol, the Caribbean nations and countries in the Central American Free Trade Agreement are exempt from such duties if they produce ethanol from crops grown in their own countries. The expectation is that using Brazilian technology for refining sugar cane based ethanol, such countries could become exporters to the United States in the short-term. In August 2007, Brazil's President toured Mexico and several countries in Central America and the Caribbean to promote Brazilian ethanol technology.
I wonder where I can buy cheap land in the Caribbean that can be used to grow sugar cane? And the US farmers are finding themselves wealthier than ever before.
That George Bush isn't as dumb as most people think.
Gillespie is all about midestern farming. Yep, they grow a lot of corn and a lot of soybeans.
Everywhere we saw in Gillespie gave the odor of money, and lots of it. The years of runup in grain prices have enriched our local farmers, and since grains are consumed worldwide, the farmers throughout the world. Not only are midwestern farmers finding lots of profits, farmers from as far away as Brazil and Chile are finding a motherload of money in their own backyards.
Now, you're wondering to yourself, what does the farmers' wealth have anything to do with ethanol and the price of gasoline?
I think for a living, and I think I do pretty well at it. Let's think a bit.
The Europeans have been complaining and even publicly demonstating about the high price of gasoline. In France, a gallon of gasoline is $8.20 (as of May 30, 2008). Compare that to the price in the US: about $4.15 a gallon of unleaded. The price of gasoline in Europe is double what it is in the US. The difference in pricing between the European countries and the US is the much higher fuel consumption tax imposed in Europe. In many countries, the additional difference is attributable to government taxes. We can say that about $4 of the $8.20 for a gallon of gasoline in France is a fuel tax imposed on the buyer. In the US, the government tax is about $0.47 per gallon of regular gasoline (for diesel it's about $0.54 per gallon).
So, why the lower fuel tax in the US? And why is the US pushing for the use of ethanol gasoline, which is a blend of gasoline and ethanol which is produced from edible corn?
Indeed, why do we need to "burn" corn when the world can eat corn? Isn't there a food shortage throughout the world? There have been recent food demonstrations, even riots, about the high prices of grains. And now, the US has created a flawed policy in mandating that corn be used for ethanol production?
The use of grains for the creation of ethanol to be blended into gasoline was first demonstrated in Brazil about 30 years prior to the US implementing the same strategy. The problem with the US is we're using corn, instead of what the Brazilians used: sugar cane. (The waste which is the residual bagasse is burnt for heat and power.) The US uses it's corn. The problem currently for the world of grain eaters is that corn can be used for more purposes of sustaining life than sugar cane. I mean, can you imagine eating sugar cane every day? Wouldn't you prefer corn every other day?
Neverthless, Brazil and the US account for about 70% of the world's production of ethanol. In Brazil, sugar cane is used. In the US, corn is used.
Now, what ramifications are there for the US? Many, and most of them are very good. Good for the farmers, good for the consumers, and good for the US.
Unlike the Europeans, where the price of a gallon of gasoline goes to the source of the gasoline (the Middle East) and the respective European government, in the US, the breakdown is different. The price of a gallon of gasoline in the US goes to the source -- the Middle East AND the farmers and their peripheral supporting infrastructure -- and then a less than 15% as a fuel tax to the US and statutory and municipal governments.
When the Brazilians manufacture ethanol, industry sources have reported 700,000 jobs existed in 2003 related to the production of ethanol. Eventually, the jobs created from continued creation of ethanol alcohol in the US will surpass that number. An implication is there will be more jobs in the US than there will be in the Middle East, or wherever the source of oil will be in the near future. The use of ethanol in Brazil also cut down the importation of oil from 1975-2002 by at leat $50 billion US.
In the US, which is too far north of the tropical weather zone, farmers cannot grow sugar cane. Hawaii is the only state that can grow sugar cane. Here's a clue to my readers as where the next possible investment opportunity can be. In March 2007, President George Bush toured Latin America and visited Brazil's president, Luiz Inacio Lula da Silva. The two countries agreed to share technology and set international standards for biofuels. Reading between the lines, the two countries will promote the production of sugar cane ethanol throughout Latin America AND the Caribbean. From a Wikipedia article:
The Brazilian sugar cane technology transfer will permit various Central American, such as Honduras, Nicaragua, Costa Rica and Panama, several Caribbean countries, and various Andean Countries tariff-free trade with the U.S. thanks to existing concessionary trade agreements. Even though the U.S. imposes a USD 0.54 tariff on every gallon of imported ethanol, the Caribbean nations and countries in the Central American Free Trade Agreement are exempt from such duties if they produce ethanol from crops grown in their own countries. The expectation is that using Brazilian technology for refining sugar cane based ethanol, such countries could become exporters to the United States in the short-term. In August 2007, Brazil's President toured Mexico and several countries in Central America and the Caribbean to promote Brazilian ethanol technology.
I wonder where I can buy cheap land in the Caribbean that can be used to grow sugar cane? And the US farmers are finding themselves wealthier than ever before.
That George Bush isn't as dumb as most people think.