How do I Invest in Ethanol Stock?
There are a number of ways to invest in ethanol stock, and equity investments would be considered indirect investments. A direct ethanol investment requires a futures contract position. Ethanol futures are traded on the Chicago Board of Trade (CBOT) under ticker symbol AK with delivery every month of the year. Indirect ethanol stock investments would require buying shares in ethanol related companies.
Publicly traded securities for companies involved in the ethanol industry are involved in the production of raw materials. Conventional ethanol is derived from grains that include corn, wheat, and soybeans. Corn is the predominant agricultural product used to produce ethanol in the United States. Investing in agricultural companies that produce corn is an indirect investment in ethanol stock.
Mutual funds and exchange traded funds (ETFs) provide alternative energy funds such as investments in ethanol related companies. The percentage of the fund dedicated to ethanol stock can be discovered by referring to the prospectus or fund report supplied by the fund manager. Many online resources analyze and evaluate energy ETFs and mutual funds. A more conservative approach to investing in ethanol is a fund that owns shares in large, well established companies.
Cellulosic ethanol is virtually the same product as conventional ethanol except it is produced with biomass feedstocks that include agricultural plant wastes. Additionally, the refining process is different. This is a newer technology and smaller companies are competing to develop the process. Companies involved in the development of cellulosic ethanol might be considered a speculative investment. Due to the complexities in the energy market including government intervention, any investment in the ethanol market might be considered speculative in nature.
Brazil, China, and the US are the world's largest producers of ethanol. Indirect investments in international ethanol stock can be accomplished through direct share purchase or an investment in an international fund that includes ethanol related companies. Brazil produces ethanol from sugar cane. An investment in a large Brazilian sugar producer is an indirect investment in ethanol.
Biofuel may be here to stay but the investor must determine in which form. The nature of investing is speculative. Investors tend to overtrade ethanol when oil prices are inflated. If biofuels become a serious contender, the oil producers may drop the price of oil to compete. The investor must speculate on whether ethanol can compete with oil and at what price. The average consumer is more concerned with the cost of the fuel than the type of fuel.
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