A heated political war is about to erupt over the 54 cent a gallon tariff on imported ethanol, which would mostly be the sugar cane ethanol from Brazil. It presently is unfeasible to import it, since the combination of the tariff and USDA's 50 cent a gallon subsidy of domestic corn-based ethanol makes imports uneconomic.
This battle has important implications for U.S. agriculture. Allowing in imported ethanol would tend to bring down the price of gas, making the U.S. buy less foreign oil. But it would expose the tenuous nature of U.S. ethanol and its fragile economics. Sugar Cane produces much more ethanol per acre than corn does, at a substantially lower cost. Corn-based ethanol is in for a short run anyway, as more efficient crops like switch grass take its place.
Only corn growers are making money from ethanol, driving corn up to $6.50 a bushel. For the corn consumers, be they livestock, commercial baked goods or soft drinks. the expensive corn is a serious problem. This side of agriculture is fighting hard to get the tariff lifted and corn prices down.
But it is an election year, and Democrats hope to carry the Corn Belt states to elect Obama and increase their majorities in both houses of Congress. Protecting corn growers, which is not in the best interests of consumers, will be a priority until after the election. At that time, pure economics are likely to take over, and corn-based ethanol's days will be numbered.
The imported ethanol tariff battle is only round one, and we'll be hearing about it for years to come.
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