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As governments continue to place an emphasis on renewable energy, many suggest that the future prospects for corn and sugar cane-based ethanol is promising giving support to the Teucrium CORN (CORN), PowerShares Global Agriculture (PAGG), Market Vectors Agribusiness (MOO), and ELEMENTS MLCX Biofuels ETN (FUE).
In Brazil, the main source of fuel in automobiles is already ethanol as most of the nationâ€™s vehicles used for transportation can either run solely on ethanol or utilize a flex-fuel system which uses a mix of gasoline and ethanol.Â The success of Brazilâ€™s use of ethanol has many other nations looking at it as a viable power source.Â
In Sweden, which has the highest number of ethanol stations in the Europe Union, a law has been enacted which requires every gasoline station in the country to provide an alternative fuel.Â Furthermore, oil companies in Australia have started to provide E10 fuel, a blend of 90 percent petroleum and 10 percent ethanol, in ther gas stations and Thailand has started actively selling E20, an 80/20 blend of petroleum and ethanol, and E85 fuel blends.Â
The trend towards using ethanol has even emerged in the worldâ€™s two largest energy consumers.Â China, the worldâ€™s second largest energy consumer, has started to embrace the idea of an ethanol blended fuel that would be used in automobiles and has started conducting preliminary implementation in five major cities.Â As for the US, the Renewable Fuels Association reports that US demand for ethanol is at an all time high and is expected to continue to grow as the importance of cleaner energy sources remains intact as the US Environmental Protection Agency (EPA) has increased the amount of ethanol that can be blended into gasoline by 15 percent, up from 10 percent, for cars and light trucks built in 2007 or later.
In a nutshell, it appears like Biofuels are going to be a significant part of the road transport fuel mix going forward and the aforementioned ETFs are likely to feel the effects.
- Teucrium Corn (CORN), which is a pure play on corn, the primary commodity behind the production of ethanol, through futures contracts.
- PowerShares Global Agriculture (PAGG), which includes companies in its holdings that are likely to benefit from increased demand of ethanol such as Monsanto (MON) and Wilmar International.
- Market Vectors Agribusiness (MOO), which includes companies like Potash (POT) and Deere (DE) in its top holdings, both of which are likely to reap the benefits of increased demand for ethanol and commodities that other commodities that are used in the production of ethanol.
- ELEMENTS MLCX Biofuels ETN (FUE), tracks a benchmark that consists of futures contracts on physical commodities that are either biofuels themselves or feedstock commonly used in the production of biofuels. FUE is heavily weighted in soybeans, corn, soybean oil, and sugar.
Disclosure: No Positions
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4 ETFs To Play Ethanol
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As supply and demand imbalances continue to take their toll on corn and other agricultural products pushing prices of these commodities higher, the path to prosperity could potentially be paved for the the Teucrium Corn (CORN), the PowerShares DB Agriculture Fund (DBA), the PowerShares Global Agriculture (PAGG) and the Market Vectors Agribusiness (MOO).
Recently, the US Department of Agriculture released a report illustrating that corn yields are lower than expected resulting in downward revisions to future crop estimates, pushing prices of the sough after commodity north of $5 per barrel.Â Â In fact, the USDA projects that in 2011, supplies as a percentage of usage would be at their lowest level in 15 years.Â Furthermore, grains have already been hit by a supply shock earlier this year by the severe drought seen in Russia.
Ian Berry of the Wall Street Journal indicates that some causes of this lower yield include heavy rains and flooding in parts of the Mid-West earlier this year which washed away nitrogen, a key nutrient in the corn production.Â Additionally, unseasonably hot-night temperatures plagued the region resulting in crops to become stressed and limited kernel growth.Â
Corn is such an important commodity due its uses in packaged foods and its importance in livestock production.Â Corn is often used by farmers and ranchers to fatten up their herds of cattle and chicken to produce more meats, eggs and milk.Â Additionally, corn is a staple ingredient in the production of ethanol, which is a source of fuel that continues to grow in global demand.
On the demand side, global demand for corn is expected to remain elevated in the near future.Â For the first time in several years, China has emerged as a consistent buyer of US corn and is likely to extend out this trend.Â In addition to China, other developing nations are likely to demand more corn as per-capita income in these regions increase and populations continue to grow.Â Demand from the energy sector is also expected to increase as ethanol margins remain favorable and the push to cleaner global energy standards continues to remain on the political agenda.
As previously mentioned, some ways to play this supply and demand imbalance in corn include:
- Teucrium Corn (CORN), which is a pure play on corn through futures contracts.
- PowerShares DB Agriculture Fund (DBA), which is a diversified play on agriculture and allocates nearly 12.79% to corn futures contracts.
- PowerShares Global Agriculture (PAGG), which includes companies likely to benefit from positive price support seen in corn such as Monsanto (MON) and Wilmar International.
- Market Vectors Agribusiness (MOO), which includes companies like Potash (POT) and Deere (DE) in its top holdings, both of which are likely to reap the benefits of cornâ€™s rally.
As always, when investing in these commodity driven equities, it is important to keep in mind in risks that are involved.Â To help mitigate these risks, the use of an exit strategy which identifies specific price points at which downward price pressure is likely to be seen is important.Â Such a strategy can be found at www.SmartStops.net.
Disclosure: Long DBA
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Four ETFs To Play Cornâ€™s Shine
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