Production of Ethanol from Corn as an Alternative Source of Fuel

Please read each response and reply to it (please keep them separate). What impact do the other students predict alternative fuel solutions could have on the current corn/ethanol crisis going forward?
What other economic options could the government implement to solve these problems?

Use any personal experience, if appropriate, to help support or debate other students' posts. If differences of opinion occur, debate the issues professionally and provide examples to support your opinions.

Here is what the Assignment was on:
In 2010, 40% of all U.S. corn production was used for producing ethanol, while 60% was used for consumption in or as food products. In 2011, a prolonged drought reduced the overall production of corn by 30%, from 10 million bushels to 7 million bushels. Currently, 2.8 gallons of ethanol can be produced from one bushel of corn. In reaction to both the losses in overall production and increasing demand, the U.S. Department of agriculture mandates that all corn producers now must use 50% of their crop for ethanol production.
What are some of the primary obstacles to efficiency of U.S. corn production?
Before the mandate, what was the opportunity cost of ethanol in terms of bushels of corn? After? What was the opportunity cost in 2010?
Was the market for corn and ethanol more efficient before or after the mandate? Why or why not? What components make for an efficient allocation?
How do you think a government subsidy of $0.99 per gallon of ethanol would affect current production level on the PPF?
Whatmethods or actions, in light of the 30% decrease in corn production for 2011, do you think could be used to return the PPF to its former level in 2010 (10 million bushels/year) or greater?

Response 1:

Ethanol production in the U.S. has grown tremendously in the last decade. Most U.S. ethanol is made from corn. As the ethanol industry has increased its share of corn use, concern has developed relative to ethanol's impact on corn price, and as a result other corn users.

It is assumed the price of corn is determined by supply and the three sectors of demand. They are: corn supply, corn price, feed demand.

Ethanol produced in the U.S. is derived mostly from corn. The primary consequence of an increase in the demand for ethanol as a gasoline fuel additive is an increase in the demand for corn.

Greater use of ethanol would make a dent in the demand for oil, a pretty small dent. Moreover, many experts contend that burning ethanol will lower greenhouse-gas emissions.

Another important reason why higher raw commodity prices cannot fully explain the rise in food prices is that the commodity component of the consumer's food bill is relatively small. Over time, the farmers' average share of total consumer expenditures for domestically produced food has dropped measurably.

Response 2:

Obstacles that would affect the U.S. production of corn would be a continued drought that would lower the production of the mandates for ethanol and for corn for consumption. The opportunity cost of ethanol in terms of bushels of corn would have met the demand for U.S supply of ethanol. There was enough corn produce and satisfy the need. The market for corn and ethanol was more efficient after the mandate because it satisfied the both demands for corn production.

The PPF (Production Possibilities Frontier) is the boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced given the available factors of production and the state of technology.

I think that the government subsidy of 99 cents per gallon of ethanol that can be produced by a bushel of corn would have farmers trying to increase the production of corn. However, with natural disasters and drought there cannot always be any guarantees.

Methods and actions that could be taken to increase the production of corn to produce ethanol would be to increase the amount of land in which you can plant crops. The other thing would to be to increase the mandate to a 60 or 70 percent to increase for the production of ethanol. However, giving up more of the food source is going to increase the price of corn and everything is made from it, making corn less of a demand on the market because people cannot afford it.

After reading a little about Obama's mandated 50/50 allocation for the corn that is produced in the U.S., we won't have to worry about the ethanol because there will be such a surplus and a low demand from no one being able to afford to use the ethanol.