Rising corn prices make ethanol a risky investment

Posted Oct 11th 2007 10:52AM by Zac Bissonnette
Filed under: Commodities, Oil, Agriculture

Not so long ago, ethanol was all the rage, and stocks like Pacific Ethanol (NASDAQ: PEIX) were soaring. So about a year ago, I called in on Jim Cramer's Mad Money and asked when the ethanol bull market would be over -- he pronounced it dead on that show, and it was a good call.

According to The Wall Street Journal, the true driver of the ethanol boom could be in jeopardy [subscription]. As more and more corn gets used for ethanol, consumers are seeing a surge in the price of food. With ethanol production approaching the Congressionally mandated quota, the growth could be over unless Congress decides to make another push for it.

Anyone investing in, or thinking about investing in, ethanol stocks should do so with the awareness that it's an industry that exists largely because of government subsidies -- it's a speculative political play as much as anything else.

And it looks like the political tide could be turning against ethanol.

Tags: Ethanol, inthenews, pacific ethanol, PacificEthanol, peix

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Reader Comments (Page 1 of 1)

10-11-2007 @ 7:40PM

Mike said...

While I don't completely disagree with the general substance of your post (ie. the biggest money to be made in ethanol is in the past and certain commodity factors are trending away from ethanol), your final point that the political tide could be turning away from ethanol in particular and alternative energy in general is shaky. Both Hilary Clinton (gotta be the national frontrunner right now) and Rudy (#2) would be as willing to fund (subsidize) development of alt energy as Bush. In fact, there is a nice argument to be made that the end of the Bush-Texas-Cheney-oil-energy industry status quo would (will) be better for ethanol, and other alt energy, plays.

10-12-2007 @ 3:40PM

JOE said...

The government seems to have no problem wasting our money on impossible things like corn ethanol and soy biodiesel. Urge your Senators and representatives to stop funding and mandating these lobbyists dreams. Everyone likes farmers until you reealize what pigs they are.