Ethanol subsidies have been around since 1979- far before the concept of “green fuel” became popular in American society. In the wake of the 1970’s oil shocks, and even today, the concept was appealing- if we could find a way to decrease our reliance of foreign oil, our carbon footprint and limit pain at the pump in one fell swoop, wouldn’t it be worthwhile?
And yet, here we are, over 30 years later, embroiled in nearly perpetual conflict with Middle Eastern oil producers, paying $4 a gallon for a gas blend that burns at 2/3 the efficiency of pure gasoline, and watching Al Gore’s Inconvenient Truth on rerun. To boot, the price of corn is at a 29 month high with our stockpiles at near all-time lows, while food prices are surging worldwide. Somewhere along the way, it seems as though our ethanol incentives, paid out to the tune of $5.4 billion in 2010, failed us.
Not convinced? Just take a look at price escalation since 2005, when the Energy Policy Act of 2005 pushed the U.S. government “all-in” on ethanol through mandated production and consumption. While crude has historically been regarded as a commodity perpetually on the rise, with the institution of the Energy Policy Act, its rate of increase has been surpassed by that of corn, which boasts an average monthly performance of 2.2%, compared to crude at a measly 1.5%.
What if we, as a country, begin to realize that ethanol subsidies may be doing more harm than good (increasing food prices without denting oil prices)… could we see the death of ethanol? Doubtful, as Iowa remains one of the first stops on the campaign trail, but the times, they are a-changing… and you never do know.
It surely doesn’t seem like ethanol ethanol incentives are worth the price tag at this point, especially with gas prices floating dangerously near all-time highs. Look out below in Corn if more and more people come to realize this.
DISCLAIMER
Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.
The entries on this blog are intended to further subscribers understanding, education, and – at times- enjoyment of the world of alternative investments through managed futures, trading systems, and managed forex.
The mention of asset class performance is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.) , and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship and self reporting biases, and instant history.
Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts.
Managed Futures:
Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.
Copyright © 2011 Attain Capital Management, LLC. All rights reserved.
ATTAIN CAPITAL MANAGEMENT, LLC.
1 E. Wacker Dr., 30th Floor, Chicago, IL 60601
800.311.1145 (toll free) | 312.604.0926 (d) | 312.604.0927 (f)
This communication is intended for informational purposes only. It is not intended as investment advice, or an offer or solicitation for the purchase or sale of any financial instrument. No market data or other information is warranted by Attain Capital Management as to completeness or accuracy, express or implied, and is subject to change without notice. Any comments or statements made herein do not necessarily reflect those of Attain Capital Management, or their respective subsidiaries, affiliates, officers or employees.