Corn Is Now Too Precious For Ethanol Subsidies (CORN, DBA, POT, CZZ, DBC)

Jonathan Yates: And they said it couldn’t be done: a $20 billion a year tax credit for ethanol has ended in the United States. Sometimes the American political system does work, even when losing the subsidy directly hurts Iowa farmers in an election year.

As detailed in a New York Times article by Robert Pear, “After Three Decades, Tax Credit for Ethanol Expires,” after 30 years, a subsidy provided by the United States expired. At an annual cost of about $20 billion, it lasted for 30 years thanks to countless presidential candidates talking up support while on the stump in Iowa.

But times change. And as noted by Dean C. Taylor, a former president of the Iowa Corn Growers Association, “We are in a fairly prosperous period for agriculture,” so those subsidies are no longer required.

This “prosperous period for agriculture” is as a result of demand from China, India and other emerging nations for corn grown in the United States. In addition, according to Pear’s New York Times piece, “Nearly 40% of the U.S. corn crop goes to ethanol and byproducts, including animal feed.”

These “byproducts” is in huge demand in emerging markets, while ethanol is a harder story. Using corn for fuel takes it out of the food chain, and while people like to drive, they need to eat.

As for the price of corn in the future, Matt Hartwig, spokesperson for the Renewable Fuels Association, stated, “We don’t expect the price of corn to fall or rise just because the tax incentive goes away. We will produce the same amount of ethanol in 2012 as 2011, if not more.”

Previous articles on have covered Chinese activities in these commodity markets.

Despite the ethanol tax credit ending, Teucrium Corn, (NYSEARCA:CORN), the exchange-traded fund for the crop closed 2011 up 8% — with a 6% rally in December alone.

PowerShares DB Agriculture (NYSEARCA:DBA), the exchange traded fund also ended the year with an up-week. Potash Corp (NYSE:POT), the fertilizer and feed giant, has risen lately, too.

And on the ethanol side, fuel can be produced from cane as well as corn. That makes companies like Brazil’s Cosan (NYSE:CZZ) a star in renewable energy circles.

Written By Jonathan Yates From Emerging Money

Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.

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