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 nation’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.  The success of Brazil’s use of ethanol has many other nations looking at it as a viable power source. 

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.  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. 

The trend towards using ethanol has even emerged in the world’s two largest energy consumers.  China, the world’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.  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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