Since I used to live in the corn belt many years ago, and owned some crop land, I thought I would offer a few comments about corn and ethanol.
See, this ethanol shit does’t make sense. We are greedily stuffing corn into our automobiles via ethanol, while much of the world is facing starvation. What’s wrong with that picture?
When I was a little kid, my mom used to tell me to eat all my broccoli because children were starving in India. I often thought, “what the fuck do I care?” (even though I didn’t know what “fuck” meant.)
I have news. The same thing goes for U.S. consumers. Joey-Loves-His-SUV could give a shit. As long as he can get his gas cheaper with ethanol in it, the rest of the world can starve. (Disclosure: that is not my attitude).
Corn = energy. Are corn prices going higher? As they say in Minnesota and Fargo, ND–“You betcha”. (btw, if you haven’t seen the movie “Fargo”, you ought to rent it. Fucking hilarious, in a morbid sort of way)
Corn is both food and energy. The market values it on that basis.
With oil at $133 / bbl, the market is valuing oil at the equivalent of about $0.023 per thousand BTUs. On the other hand, when corn is converted into ethanol, and assuming a $0.023 per thousand BTUs equivalent, that puts the price of corn at $8.00 per bushel (factoring in the $0.51 per gallon subsidy for ethanol).
Another reason why ethanol doesn’t make sense: When you consider the average yield of corn per acre, the input costs for fertilizer, a conversion rate of 2.50 gals / bushel, and the amount of energy used in the conversion process, including energy usage embodied in farm machinery, there is a NET ENERGY LOSS. But hey, it’s good for Joe Farmboy!
In addition, companies like [[MRO]] have some incentives right now to blend corn-based ethanol with gasoline, whether or not there are subsidies or Federal mandates–when they feel like it. With ethanol around $2.50 / gal, it’s much cheaper than wholesale gasoline, currently over $3. Sorry, no more regular gas. It’s not profitable.
In conclusion, I would not be buying ethanol stocks. What are some of the risks? Well for one thing, if our government had the balls to say, “fuck you Joe Farmboy, no ethanol subsidies”, we could see ethanol stocks go to zero, much to the chagrin of Junior Sample.
Of course, the farmers could retort with, “fuck you FDA, we’re spiking your hamburger with cowshit”. So, subsidies will not disappear anytime soon, due to all the fat-ass bureaucrats.
However, it appears that corn prices will remain fairly high. I expect corn to spike to over $8 this summer. It’s priced into the ethanol stocks right now.
Disclaimer: This information is not intended to be used as the primary basis of investment decisions. Because of individual investors requirements, it should not be construed as advice designed to meet the particular investment needs of any investor. Consult your financial advisor prior to taking any actions. The information and opinions contained here are those of the author and are not necessarily the same as those of iBankCoin, its principals or its affiliates. The author has no positions, long or short, in ethanol stocks. Trade at your own risk.
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