Agriculture and its related exchange traded funds (ETFs) could have experienced growth along with biofuels, but a severe reversal in our economy, along with gasoline prices, has created insufficient demands for cellulosic ethanol.
Bob Dinneen, president of the Renewable Fuels Association, calculates that 2 billion of the total 12.5 billion gallons of ethanol has been cut from the annual production capacity after 24 of 180 plants were shut down in the last three months, reports Clifford Krauss for The New York Times.
As oil and gasoline prices nose-dived, corn, a major component of ethanol, has remained at its high prices. Refiners are now limiting their ethanol purchases and it looks like the Congressional production mandates that start next year will not be meet.
Congress had mandated a doubling of corn ethanol use to 15 billion gallons a year by 2015 in an attempt mitigate environmental and foreign oil concerns. By 2022, there would also be an additional 21 billion gallons of ethanol and other biofuels produced from biomass, an amalgamation of corn stubble, wood chips, and straw.
Energy experts think gasoline consumption in the following years will be 6% or more below 2007 levels, and since regulations set a 10% blend limit for gasoline, the ethanol industry may not see much potential for growth.
- PowerShares DB Agriculture (DBA): up 2.6% in the last week; down 6.7% in the last month; holdings of 25% in corn futures
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.