Take Basehor, Kansas-based ethanol plant, Ethenex Energy for example. This company opened its doors in the midst of the ethanol boom two years ago, when "Corn was the cheapest it had ever been and ethanol was skyrocketing," former Ethanex president and chief executive officer Al Knapp said. "There was a land rush for people to build ethanol plants."

But today, with the price of corn hitting $6 a bushel and the price of ethanol falling, Ethanex was "definitely held captive by the capital market."

The company filed for Chapter 11 late last month. And more and more this sort of scenario is playing out for ethanol plants.

"I have gotten about ten emails like [the story above] from farmers in Illinois, MN, Iowa, Wisconsin and Indiana. Either ethanol plants under construction that have ceased or plants that are declaring Chap. 11. Looks like the 'dream' of the new gold rush in corn based ethanol is starting to unravel, and fast.

"I am headed out to Minnesota on the 17th and will be visiting a few farms and hog operations as well as a feedlot as well as an ethanol plant (under construction) in Janesville Minnesota. It will be interesting to get a sense of what the sentiment is now as compared to the last two years that I have talked to farmers. Somehow I think a lot of the euphoria is gone, corn at $6 will do that since it has made input costs skyrocket."

We know that long time DR-sufferers where never fooled by the great ethanol swindle. It was clear that the dream of this corn-based fuel was to be short-lived.

*** As we've been saying...there is no advantage so great that the authorities can't waste it...

Colleague Garry White explains how the oil producers are squandering their windfall revenues:

"The latest data available on World Energy consumption is for 2003 from the World Resources Institute. The figures represent total energy consumption per capita in units of kilograms of oil equivalent (kgoe) per person.

US: 7,794.8
UK: 3,918.1
UAE: 10,538.7
Qatar: 21,395.8
Kuwait: 9,076.0
Bahrain: 10,250.5

"The U.S. is decried as the gas-guzzling capital of consumption...but this is only partly true. It is actually the residents of the Middle East who are the largest consumers of energy in the world. With a wealth and population explosion added to the mix, oil-rich countries are facing an unprecedented energy crunch.

"Middle East governments were more generous in subsidising oil products than governments anywhere else in the world during 2007, according to the IMF. While oil prices rose strongly through the year, governments in the Middle East passed on just 58% of the increase in the cost of importing petrol.

"Egyptians paid just $0.23 for a litre of kerosene at the end of 2006, compared with the $2.25 a litre paid by consumers in Turkey, which passed on more of the increase to consumers.

"The region's governments also passed on an average of 67% of the increased cost of diesel to their consumers, a smaller amount than governments in any other part of the world. Yemen spent a staggering 9.3% of GDP on energy subsidies in 2006, the most of any country in the region."

And from Horacio Pozzo, our man here in Buenos Aires, comes word that you can fill your gas tank up in Venezuela for only $3. Still, the economy of Chavez's country is a disaster. The shelves are empty, and the inflation rate and the murder rate are both at record highs.

Bill Bonner
The Daily Reckoning Australia

• Aquaculture: Soybeans and Corn Under Water
• Farmers Feel Consumers Blame Them for High Food Costs
• Farmers Say ‘Rain, Rain Go Away’ Throughout the United States
• An Abundance of Paper Money is Causing Food Prices to Soar
• Corn Prices on the Rebound

"Couldn't you find anything cheaper?" was asked Elizabeth.

"Well, of course...but I didn't have time to pay much attention...and besides how often will we come here...how often do we go anywhere?"

We could tell from the tone of her voice that this issue was not worth pursuing. Besides, we are used to being shocked by prices in Europe. We're shocked so often, in fact, that we'd be shocked if we weren't shocked. Still, occasionally, we got a major shock in the restaurant. The breakfast buffet was $49; we almost decided we could wait to eat until we got home.

At the table next to us was a group of Americans, a hearty, trim man in his 60's, with one nice-looking woman in her 40's...and two young women, obviously his daughters, in their 20's. They all looked so wholesome, dressed in jeans and sweaters...the girls with blond hair, blue eyes and straight, sharp noses.

In foreign countries, we often imagine that the people near us cannot understand English and speak more freely than we might at home. Usually, this is a mistake. There is always someone nearby who speaks English - practically everywhere, and especially in Geneva. In this case, we understood every word they said.

We wondered what brought them here. This was not a tourist hotel...Geneva is not really a tourist town. And these people were purely American, Midwesterners, probably...not like the Euro-Americans who have spent so many years on the continent that they have picked up the affectations of the local people.

"Oh Daddy, I wish you'd buy me another watch," said one of the girls. "I think I left my Cartier watch at the beach house. I can't find it. It's probably lost."

The conversation about watches continued for a while. Then, the subject of ethanol came up.

"Are we still in ethanol?" one of the girls asked.

"Yes...we've done real well with it too. But I'm not putting any more money in. People are wising up..."

"What do you mean?"

"Well, ethanol doesn't really make any sense economically...it's too expensive to produce per unit of actual energy. Not really competitive with oil. And it doesn't make sense environmentally either. By the time you figure out all the damage to the environment done by planting corn...harvesting it...transporting it...and then turning it into fuel, it's more than you get from oil. No...ethanol only makes sense politically. Iowa votes early. And Iowa raises corn. No politician wants to oppose ethanol."

"Well, how did we make money in ethanol if it doesn't make sense?"

"Just 'cause it doesn't make sense doesn't mean there's no money in it. The government's been subsidizing ethanol on the one hand...and inflating the dollar on the other... The subsidies make producing ethanol very attractive for that partnership we're in. And then, with the dollar going down, the price of oil goes up - and the price of ethanol too. That's why we've done so well...thanks to the politicians."

"Then, why don't we stick with it?"

"I don't know...I just smell a change coming on. People don't like to think about kids starving in Africa and Asia while we're burning corn in our gas tanks. And the whole economy is going soft...which could cause the price of oil to go down. I tell you, we had a very good run...we should be happy with it...and let it go at that."

"Well, Daddy...will you buy me another Cartier watch to replace the one I lost? You can use some of the money we made from ethanol."

Bill Bonner
The Daily Reckoning Australia

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