4 ETFs to play ethanol

Biofuels are going to be a significant part of the road transport fuel mix going forward. Here are four exchange-traded funds to gain exposure to the trend.

By TheStreet Staff Nov 5, 2010 12:54PM

thestreetGas prices © CorbisBy Kevin Grewal, TheStreet


As governments continue to place an emphasis on renewable energy, the prospects for corn and sugar cane-based ethanol are promising, giving support to exchange-traded funds like 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 can either run solely on ethanol or utilize a flex-fuel system that can run on a mix of gasoline and ethanol. The success of Brazil's ethanol use has many other nations looking at it as a viable power source.


In Sweden, which has the highest number of ethanol stations in the EU, 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% petroleum and 10% ethanol -- in gas stations, and Thailand has started actively selling E20, an 80/20 blend of petroleum and ethanol, as well as E85 fuel blends.


The trend toward using ethanol has even emerged in the world's two largest energy consumers. The second-largest, China, has started to embrace the idea of an ethanol blended fuel that would be used in automobiles, and is beginning preliminary implementation in five major cities.


As for the U.S., the Renewable Fuels Association reports that U.S. demand for ethanol is at an all-time high and is expected to continue growing. The importance of cleaner energy sources remains intact as the U.S. Environmental Protection Agency (EPA) has increased the amount of ethanol that can be blended into gasoline to 15%, up from 10%, 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 reap some of the benefits.


1. Teucrium Corn is a pure play on corn, the primary commodity behind the production of ethanol, through futures contracts.


2. PowerShares Global Agriculture includes companies in its holdings that are likely to benefit from increased demand of ethanol such as Monsanto (MON) and Wilmar International.


3. Market Vectors Agribusiness 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 other commodities that are used in the production of ethanol.


4. ELEMENTS MLCX Biofuels ETN 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.


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