Nothing in the alternative and renewable energy space generates as much controversy and buzz as ethanol - and corn-based ethanol certainly has a number of detractors. While new solar and wind energy projects seem to be functioning okay despite European austerity measures, the U.S. corn ethanol sector continues to disappoint. That is, until now. Poor weather conditions and rising demand has caused another biofuels leader to falter. This stumble could be just what the U.S. ethanol industry needs. (In this article, we'll take a look at biofuels and examine their benefits. For more, see The Biofuels Debate Heats Up.)
TUTORIAL: Commodities: Corn

Rising Currency, Poor Crops
Brazil's status as one of the world's leading biofuel producers could be in jeopardy. Brazilian sugarcane-based ethanol has traditionally been one of the cheapest sources of biofuels, producing eight-times the energy versus inputs. However, according to the U.S. commerce department, Brazil imported nearly 70 million liters of corn-based U.S. ethanol in 2010, up from just 1 million in 2009. The imports of ethanol continued into 2011. The nation imported an estimated 80-200 million liters of ethanol during the first quarter. While Brazil consumes much of its ethanol production, it typically exports nearly 10% to developed nations. This includes the United States. So the shift is certainly interesting. The country has been importing record levels of ethanol due to myriad of factors. (For more, see Investing Seasonally In The Corn Market.)

The surge in ethanol imports reflects disappointing Brazilian production and rising fuel consumption. Two years worth of poor weather conditions have drastically hindered sugarcane growth. The Brazilian Sugarcane Industry Association, UNICA reported that last month that the sugar harvests was ending earlier than normal. Only seven plants were still crushing sugarcane in the country. Last year at this time, nearly 41 mills were still operating through April. Soaring demand in the nation is also helping the U.S. corn ethanol industry. Brazil's adoption of flex-fuel vehicles has helped the sector see tremendous increases in a short time. Currently, there are about 11 million flex-fuel automobiles in Brazil, with the nation adding 2-3 million new vehicles each year.

Finally, strong pressures have also contributed to the increase in ethanol imports. Sugar prices have soared along with other food commodities, making Brazilian ethanol more expensive. In addition, the fallen greenback has made all U.S. exports cheaper for international customers. The one-two punch could be what the U.S. ethanol industry needs. The U.S. is now the world's second-largest ethanol exporter, selling to the Middle East, Europe and Canada. (For more, see An Overview Of Commodities Trading.)

Betting On U.S. Ethanol
With the dollar fallen and worldwide ethanol demand still rising, many U.S. producers believe they are approaching the point where they can compete without state or federal support. The 45 cent per gallon blenders credit (VEETC) is due to expire at the end of this year and some new legislation would provide a safety-net for producers, payable on a sliding scale linked to the price of oil. However, U.S. producers may not need it and now may be the time for investors to add ethanol to a portfolio.

For those investors looking to cash in on the United States' newfound prominence in the ethanol world can mean only one thing: corn. The Teucrium Corn Fund (Nasdaq:CORN) allows investors to bet on rising corn prices and consumption. The ETF makes an interesting play on the rise of U.S. ethanol exports. In addition, for those who want to bet on the overall growth of biofuels, the ELEMENTS MLCX Biofuels Index ETN (NYSE:FUE) can be used as well. (For more, see How To Reduce Taxes On ETF Gains.)

Both Pacific Ethanol (Nasdaq:PEIX) and Green Plains Renewable Energy (Nasdaq:GPRE) are two of the more notable pure- play producers. However, they are not the leaders in terms of volume. Archer Daniels Midland (NYSE:ADM) has the size and global expertise to really gain from the expansion of U.S. ethanol exports. In addition, refiner Valero Energy's (NYSE:VLO) fire sale purchases of Verasun's assets makes it an idle play as well.

Finally, increased ethanol exports will mean more corn planting, and ultimately benefit the agriculture sector in general. The PowerShares Global Agriculture (PAGG) and IQ Global Agribusiness Small Cap ETF (NYSE:CROP) are great ways to play the boom in agriculture.

The Bottom Line
While the U.S. corn ethanol sector has had to play second fiddle to Brazil's sugarcane dominance, recent developments has made the sector desirable once again. Brazil's shift to importer from exporter will benefit U.S. producers. Investors may want to avoid sugarcane producers like Cosan (NYSE:CZZ) and go with domestic corn ethanol stocks like The Andersons (Nasdaq:ANDE). (For more, see Clean Or Green Technology Investing.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: BioShares Biotechnology Products

    Learn more about the BioShares Biotechnology Products fund, an exchange-traded fund that is focused on producers of FDA-approved drugs.
  2. Mutual Funds & ETFs

    ETF Analysis: SPDR EURO STOXX 50

    Learn about FEZ, the Euro Stoxx 50 ETF. FEZ tracks the 50 largest companies in Europe, making it the Dow Jones Industrial Average of Europe.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraShort Nasdaq Biotech

    Learn more about an innovative inverse-leveraged sector exchange-traded fund, or ETF, the ProShares UltraShort Nasdaq Biotechnology fund.
  4. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  5. Professionals

    What to do During a Market Correction

    The market has what? Here's what you should consider rather than panicking.
  6. Mutual Funds & ETFs

    ETF Analysis: Market Vectors EM High Yield Bd

    Learn more about the Market Vectors Emerging Markets High Yield Bond ETF, a fund dedicated to subinvestment grade foreign debt issues.
  7. Mutual Funds & ETFs

    ETF Analysis: First Trust Tactical High Yield

    Find out more about the First Trust Tactical High Yield fund, a debt security-focused ETF designed to produce high income.
  8. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI South Africa

    Learn more about the iShares MSCI South Africa fund, which is an NYSE-listed exchange-traded fund offered and managed by BlackRock.
  9. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P 600 Small Cap Growth

    Learn more about the SPDR S&P 600 Small Cap Growth ETF, a highly efficient fund that tracks small-cap equities in the United States.
  10. Mutual Funds & ETFs

    ETF Analysis: WisdomTree International Hdgd Div Gr

    Review an analysis of the WisdomTree International Hedged Dividend Growth Fund ETF, which offers investors broad international exposure.
  1. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  2. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  3. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  4. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  5. Benchmark Crude Oil

    Benchmark crude oil is crude oil that serves as a pricing reference, ...
  6. Lion economies

    A nickname given to Africa's growing economies.
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  4. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!