Given that two-thirds of oil and gasoline consumption comes from foreign sources, alternative energy is all the rage these days, whether it be solar power, fuel cells, wind power, manure, and of course, ethanol. Ethanol today is largely made from the sugar of corn or sugarcane, which is basically grain alcohol that can be mixed in varying amounts into gasoline. Despite growing critics ethanol has slowly but surely emerged as the next real alternative fuel of choice in the US. In fact, the government has already picked ethanol to move to the head of the alternative energy fuel class.
Ethanol Gets Government Backing: The US government has approved a 50 percent boost in the amount of ethanol in gasoline for newer cars made in 2007 or later to 15 percent from 10 percent. The announcement comes after the EPA reported that the rise in Ethanol does not harm emissions control equipment in newer cars and light trucks. The Environmental Protection Agency while approving the request from ethanol producers to raise the amount of ethanol in a gallon of gasoline named the new fuel as E15 gasoline.
The Rise Of Corn- Ethanol Futures: Meanwhile after the recent lowering of USDA estimates for the US corn harvest with the prospect of tighter supplies, triggered a surge in futures prices and a rally in shares across the agribusiness sector especially in the corn and Ethanol segment. While CBOT Corn Futures reached two-year highs Wednesday before pulling back slightly, Ethanol futures settled higher, inching up in an attempt to keep margins profitable in the face of input corn cost.
Investing in Ethanol: Some investors have certainly made money with ethanol stocks. Investors once made money on dot-com’s as well. Making money is no indication that the underlying fundamentals are good. Although investment performance returns from these alternative energy companies may not yet be as competitive as the established companies that are currently in the business of the popular fossil fuels, the technology for these alternative fuel companies may still be a long way of waiting as the issue of having the necessary infrastructure to produce and distribute alternative sources of fuel like ethanol will take quite some time.
There is an exchange-traded fund (ETF) that specializes in ethanol and other alternative energy sources: PowerShares WilderHill Clean Energy (PBW). PBW came out at around $15 in March 2005, climbed to $24 in May 2006, and is now at $9.35 a share.
PBW Top Holdings:
1. Broadwind Energy, Inc. (BWEN): 3.01%
2. Ormat Technologies, Inc. (ORA): 2.54%
3. JA Solar Holdings Co., ADR ADR (JASO): 2.47%
4. Universal Display Corporation (PANL): 2.45%
5. Suntech Power Holdings Co., Ltd. ADR (STP): 2.45%
6. Idacorp, Inc. (IDA): 2.44%
7. First Solar, Inc. (FSLR): 2.43%
8. Yingli Green Energy Holding Company, Ltd. (YGE): 2.43%
9. ReneSola Ltd (SOL): 2.43%
10. CPFL Energy SA ADR (CPL): 2.42%
Expense Ratio: 0.60%
Teucrium Corn Fund (CORN), a product that offers exposure to exchange-traded corn futures.
CORN Top Holdings:
1. C U0 Pit Comdty Sep10 Corn Future: 37.53%
2. C Z1 Pit Comdty Dec11 Corn Future: 37.38%
3. C Z0 Pit Comdty Dec10 Corn Future: 32.46%
Expense Ratio: 1.00%
Ethanol Market Trends: For two decades from the early 1980s to the early 2000s the ethanol industry was largely stagnant. Ethanol production in the US and Canada was growing, but only gradually. Brazil's ethanol output was actually sliding. And worldwide output was stagnating. Then, at the turn of the new millennium, the US government and industry began to push ethanol more forcefully and sales and demand in Brazil, the world's leading producer of Ethanol rose exponentially. The result was a worldwide ethanol production boom that has nearly doubled in five years with the surge in volume has triggered the development of new, more efficient technologies. Right now, the only country with cars running on pure ethanol is Brazil. But a mix of ethanol and gasoline is used in the U.S., the European Union, Mexico, India, Argentina and Japan.
Ethanol Outlook: The Corn Growers Association says that by 2015 a third of all the corn grown — or 5.5 billion bushels — likely will be for ethanol. The Energy Department says it has a goal of 30% of the fuel used by motorists to be ethanol — both corn-based and cellulosic — by 2030.
Brazil: Brazil has thousands of gas stations using the same tanks, pumps, tankers for transportation, some with minor modifications and Brazil is building new pipelines to transport ethanol. Brazil is undergoing an ethanol revolution far more drastic than that in the US Flex-fuel cars that can run solely on ethanol are widely available and the ethanol supply is short enough that the government recently reduced the mandatory ethanol content in gasoline from 25% to 20%.
Disclosure: No positions