The creation of politically popular biofuel mandates by many of the world’s biggest farming nations has been particularly disruptive. U.S. law, for instance, requires that ethanol make up at least 5% of vehicle fuel (rising to 22% by 2022), and 30% of U.S. corn went toward ethanol production last year (see chart above, with slightly different data).

The U.S. government has claimed that biofuel demand is responsible for only 3% of the increase in global food prices over the past year. But a recent World Bank report estimated that figure to be 75% once the resulting economic changes, such as shifts in land use, are considered.

High prices hurt poor, import-dependent nations the most. The price hikes of the past three years threaten to push 100 million people back into poverty, according to the World Bank. Although a backlash had yet to develop, were one to arise, much of biofuels artificial demand could fall.

Rumor has it that Brazil's ethanol producers are getting ready to invade the U.S. market. Many will be willing to swallow the 54-cent tariff (which is expected to expire in 2009) imposed on their ethanol. Joao Val, CFO of Sao Martinho SA, one of Brazil's leading ethanol producers, believes "Brazil is going to be much more aggressive this summer to sell ethanol...in the U.S."

With U.S. corn ethanol currently selling at a high price of $2.48 per gallon, many Brazilian companies see a lucrative opportunity in exporting their cheap sugar-cane based alternative. Even with the tariff included, Americans currently get to purchase Brazilian ethanol at a bargain price of around $2.18 a gallon. This number is bound to go even lower with Brazil harvesting a record-breaking sugarcane crop of over 500 million metric tons.

This only spells trouble for the U.S.'s nascent ethanol industry, as U.S. producers are already struggling with high corn prices. Currently hovering around $6 a bushel, corn prices are expected to go even higher as the USDA recently announced an 8% expected drop in U.S. corn plantings.

As a result, several ethanol producers have already suspended production or even filed for bankruptcy, such as Kansas based Ethanex Energy. New Zealand's LanzaFuels announced late last year its plans to put local ethanol production on hold due to cheaper imports from Brazil. Brazil's cheap prices will only make it harder for these companies to grow.

Brazil will be especially eager to sell to the U.S. with recent developments in the European market. Brazil's hold on this market has become increasingly tenuous as Germany has decided to postpone its plans to introduce a mandatory 10% ethanol mix in gasoline and the UK has decided to do away with the credit line for its E85 program. With more focus put on the U.S. market, Brazil may be successfully maneuvering a checkmate to an already beaten down U.S. ethanol industry.

John McCain and twenty-three other Republican Senators sent a letter last Friday to the EPA asking the agency to reevaluate the current ethanol mandate as food prices continue to soar. The EPA does have the authority to waive the mandate or structure it differently "if the mandate results in adverse unintended effects."

In the letter, McCain stated:

Every time hardworking American families buy groceries, they feel the financial sting of misguided federal policies mandating that taxpayers support ethanol. It isn’t a surprise that food prices are rising when more than 25 percent of the corn grown today is taken out of the food supply and instead used for subsidized ethanol production. This subsidized program - paid for with taxpayer dollars - has contributed to pain at the cash register, at the dining room table, and a devastating food crisis throughout the world. We need to put an end to flawed government policies that distort the markets, raise food prices artificially, and pit producers against consumers. We must call on the EPA to exercise its authority to not exacerbate this already bad situation.

Obama, two days later, on "Meet the Press" stated that, "there's no doubt that biofuels may be contributing to [rising food prices]."

Without government intervention, ethanol will become a fad real quick.

While corn-based ethanol is the only source of non-oil vehicular fuel RIGHT NOW, that doesn't mean it should or will be used. The purpose of turning away from oil (gasoline) is threefold (the order of importance is arguable): a) reduce greenhouse gas emissions, b) reduce dependence on foreign oil that supports terrorism and political violence, and c) reduce consumer exposure to volatile fuel prices.

Corn based ethanol does not fulfill any of these needs. In terms of reducing exposure to oil (b and c), it currently takes more energy (read: oil) to produce a gallon of ethanol than it does to produce a gallon of gasoline. Because oil is an important input into the farming of corn, corn prices absorb oil prices, leading to the volatility of not only a major ethanol input, but also a major foodstock. Furthermore, the need to use MORE oil to produce a gallon of gasoline equivalent of ethanol in no way reduces this country's dependence on foreign oil - it increases it.

Regarding GHG reductions, the carbon contained in the oil used to fertilize the cornfields will be released when the corn is processed or eaten, and when the ethanol is burned. This does nothing whatsoever to mitigate GHG emissions, and since more oil is used, it actually increases them.

So, just because corn-based ethanol is the only gasoline alternative at the moment doesn't mean it's worth using or investing in - and with the terrible press it's been getting lately, it would not be a good middle- to long-term investment. Cellulosic ethanol, however, is far more promising; companies like Bluefire Ethanol, who turn waste to fuel, are far greener and have technology that is far more promising, even if it will take 2-3 years before their production unites start to come online. Since 21 of the 36 billion gallons of ethanol per year required to be produced by 2022 in the Energy Independence and Security Act of 2007 must be cellulosic ethanol, it's worth the wait.

Due to high Corn prices, Cargill announced on Feb 28 2008 that it will suspend construction on its 100 million-gallon-per-year ethanol plant in Kansas due to high corn prices.

Good news for ethanol producers like ADM (ADM), Verasun (VSE) and Pacifc Ethanol (PEIX).

The U.S. Department of Agriculture forecast that farmers will harvest 12.3 billion bushels of corn, up more than 570 million bushels from last month's estimate of 11.7 billion. That's down 6% from last year's record crop of 13.1 billion bushels, but 17% above the 2006 harvest.

Average corn prices this year are expected to drop to $4.90 to $5.90 per bushel, down 60 cents from last month's forecast of $5.50 to $6.50.

Corn prices soared to record levels near $8 after the floods, the worst to hit the Midwest in 15 years. But cooler, wetter weather since then will boost corn yields to 155 bushels per acre, up from last month's estimate of 148.4, the department said.

Corn prices have already dropped to almost $5 per bushel, though that is still higher than in 2006, when a bushel cost $2.

In its recent earnings release, ADM said it expected to see higher ethanol selling costs this quarter and this news ought to bring down corn costs that saw a "significant increase in the prior quarter.

The recent Kiplinger Reports said that refiners are trying to slip extra ethanol in mixes because of the 88 cents per gallon cost differential. What this means is that there is no demand issue with the product, refiners cannot get enough of it.

We are about 4 billion gallon per year short of making all US gasoline E10. This year the industry will produce roughly 9 billion gallons and the mandate for next year is 11.1 billion. This will easily be absorbed through the system.

It all boils down to increases profits for ADM and the others..

• Ethanol stocks plummeted Thursday due to Wednesday's news of corn shooting up 14 cents and Bush finally showing concern over corn-ethanol. Verasun Energy (VSE) (-9.03%) and Aventine Renewable Energy Holdings (AVR) (-12.02%) hit new 52-week lows while Pacific Ethanol (-10.90%) neared its own of $4.20 a share. Assisting the downfall was a report published by the Wall Street Transcript which set a bleak outlook for ethanol this year. In the report, Pavel Molchanov of Raymond James & Associates stated "a typical ethanol producer will be at best breaking even this year and possibly losing money on these companies

• Add "bad weather" to the already lengthy list of problems corn-ethanol needs to overcome. Heavy rains, severe winds, and tornadoes throughout the Midwest has propelled corn into uncharted territory. July corn on the CBOT rose 28.6 cents Thursday to settle at an all time high of $6.43 1/4 a bushel. Farmers are saying this is the worst weather they have seen since 1993, when U.S. crops suffered from weeks of rain that eventually led to the severe flooding of the Mississippi river. Agriculture Secretary Ed Shafer expressed "a lot of concern" for the corn crop in Thursday's summit on the global food crisis. The option of replanting corn that was damaged in May is dwindling as farmers are deciding whether they should replace their corn with a shorter growing season crop like soybeans. All ethanol producers can do now is desperately pray for sunshine as there is already a tight supply of corn available.

Ethanol fires are harder to put out than gasoline ones as water cannot be used and a special type of firefighting foam is required. This is a foam that many fire departments in the country don't have and is 30% more expensive than the conventional foam used for gasoline fires.

The current ethanol boom has had many unintended consequences on the US economy. By raising the price of corn and farmland, the cost of food producers has risen dramatically. This in turn is passed onto consumers. Such consequences could lead to a questioning of ethanol's real potential.