So USDA Is Pondering a "Sugar-for-Ethanol" Program. No, Really.

From earlier this week comes news of what could quite possibly be the most cronytastic US government program of all time:

The White House will decide in coming weeks whether to attempt to blunt low prices in the U.S. sugar market by buying hundreds of thousands of tons of surplus sugar and selling it at a loss to ethanol makers.

If approved, it would be the first time the sugar-for-ethanol program, created in 2008 and known as the Feedstock Flexibility Program, has been put into operation....

Large crops in the United States and Mexico have pushed New York futures prices below the trigger price for potential forfeiture by processors of sugar to the government.

The sugar is used as collateral on USDA price-guarantee loans.

Forfeitures could begin in July, with the expiration of USDA loans that guarantee growers will get at least 20.94 cents per lb for sugar. The remainder of the loans expire in September.

"We're doing it because it's the law," U.S. Agriculture Secretary Tom Vilsack said on Monday at the North American Agricultural Journalists meeting. The tonnage purchased "is still not decided," he said....

The 2008 farm law directs USDA to make surplus sugar available to ethanol makers, a provision penned in the early days of the biofuel boom with the goal of creating feedstocks in addition to corn.

"The law makes the Feedstock Flexibility Program the first line of defense. The other main option is to reduce the volume of imports through negotiation or by buying back certificates of quota eligibility," said Tom Earley, economist and trade policy specialist with consulting firm Agralytica.

Some $864 million in loans was in danger of forfeiture, by one estimate. The USDA forecasts the sugar stockpile at the end of this marketing year at 2.4 million tons.

At 20 percent of annual use, it would be the largest carryover since 2001. The USDA will update its forecast of the sugar surplus on Wednesday....

So a 2008 law forces USDA to (i) subsidize US sugar growers by buying their product at above-market prices and then (ii) subsidize US ethanol producers by selling them the exact same sugar at below-market prices.

Ladies and Gentlemen, the United States Government.

On a more serious note, insanity like this provides a perfect example of why it's just so darn tough to eliminate US subsidies - politicians shilling for the sugar growers form an unholy, subsidy-loving alliance with their colleagues shilling for the ethanol (mostly corn) producers. These "public servants" concoct mutually-beneficial programs like the "Feedstock Flexibility Program" to line their cronies' pockets, and they agree to oppose any attempts to trim those programs or any other subsidies that they've secured.

They win; taxpayers (and markets) lose; rinse; repeat.