Graphs of the Day: Why is Corn so Expensive?

Many thanks to Roger Pielke Jr. for putting this  analysis together. It is difficult to understand why the ethanol mandate is still in place. From what we are reading it appears there will be no relief until 2013. Why?


Purdue/NFF study says reduce mandated ethanol production by 45% and corn prices drop 23-28%, from Table 2 in the study:…

— Roger Pielke Jr. (@RogerPielkeJr) August 17, 2012

The graph above comes from USDA data displayed on this DOE website. It shows US corn production and also the amount devoted to ethanol production. USDA currently forecasts 2012 corn production at 10.8 billion bushels, the lowest since 2006.

However, due to government polciies increasing amounts of corn are diverted to ethanol production. The graph below simply shows the difference between the two curves above.

For 2012, if ethanol production were to occur at 2011 levels, then net corn production would drop to 5.8 billion bushels, the lowest since at least 1993. Without the ethanol mandate this year, US corn production would be at an all time high.

Why is corn so expensive? The answer does not seem difficult to understand.