Professor Chad E. Hart, professor of economics at Iowa State University:“ Corn is an incredibly flexible crop that can be used in so many industries. Which is important, because we get more bushels every year.”
Jeffrey Ross-Ibarra, professor of evolution and ecology in the College of Biological Sciences, University of California at Davis:“ If you already have a lot of corn, there is going to be political and social pressure to use that.”
Sasha Bakhter, UC Davis
fencerow” and“ get big or get out,” Butz reconfigured subsidies to encourage maximum yield.
In traditional economics, low prices drive a decrease in production, just as high prices support increased production. But that paradigm is turned on its head for corn. With the financial mandate for farmers to produce ever-increasing volumes, corn completed its shift from an agricultural commodity to an industrial raw material.
“ When prices drop, farmers just say,‘ I’ ll make it up in production,’” according to Smith.“ There is some price responsiveness, but subsidies do skew that. The subsidies are a very political issue, so there tend not to be major revisions, and there is only a Farm Bill every five years. Unless there is just a continuing resolution.”
It might seem that the oil shocks of the early 1970s should have given rise to the fuel ethanol industry, but high corn prices were a militating factor. Also, the industrial-scale processing capacity and technology were not well advanced.
“ Moonshiners have long known how to turn corn into alcohol,” said Chad E. Hart, professor of economics at Iowa State University.“ Looking back at the’ 70s that should have resulted in the US looking into expanded domestic oil production plus biofuels. But we got neither.”
Thirty years later, much had changed.“ By the early 2000s the price of corn was very low, and also we had learned to fine tune the process,” said Hart.“ There were also more rural legislators looking for potential industrial development in agricultural areas.”
The result was the Renewable Fuel Standard( RFS), a federal program that requires transportation fuel sold in the United States to contain a minimum volume of renewable fuels. The RFS originated with the Energy Policy Act of 2005 and was expanded and extended by the Energy Independence and Security Act of 2007.
The original mandates did not specify corn, but that quickly became the de facto raw material and has since cemented its primacy.“ Corn is ridiculously productive, yielding the most carbohydrates per unit area,” said Jeffrey Ross-Ibarra, professor of evolution and ecology in the College of Biological Sciences, University of California at Davis.“ Genetically corn has adapted to a wide range of diverse environments. If you already have a lot of corn then there is going to be political and social pressure to use that. It was a political decision that made corn dominant in fuel ethanol.”
Fuel ethanol capacity in the United States was 1.2 million barrels a day at the start of 2025, according to the US Energy Information Administration( EIA). For perspective, US oil production for 2025 is projected to be 13.6 million barrels a day, making fuel ethanol about 9 % of oil production.
Those figures are strictly for relative scale, because ethanol does not directly displace domestic crude oil in the production of domestic fuels. A significant portion of US crude is exported, while US refineries tend to use imported crudes. That is a significant net import / export gain, because US crudes usually command a premium on global markets while large and complex‘ deep conversion’ US refineries can make large volumes of highvalue fuels, lubricants and petrochemicals from lower-cost imported crudes.
While there is fuel ethanol production in 22 states, including New York, Texas and California, capacity is heavily concentrated in the Midwest: 27 % in Iowa, 13 % in Nebraska and 10 % in Illinois, according to the EIA.
Production capacity might be the only clear factor about corn-based fuel ethanol. One essential and fraught debate is the energy balance. Some research has determined that it is a net energy loss: When the production and transportation for all the fertilizers and herbicides needed to support high-density hybrid corn are factored into the equation, corn-based ethanol takes more energy to make than it
26 FINANCIAL HISTORY | Fall 2025 | www. MoAF. org