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Blog : Iowa…the Stock Markets Next Field of Dreams?
by John Whitefoot on April 13th, 2007
Making it rich in oil may be on the minds of many penny stock investors, but in the not too distant future, corn may turn the markets on its ear.
For centuries corn has been a staple of everyday life, used as a source of food, energy and monetary value. From the early crops first cultivated by the Mayans, to present day advanced hybrids resistant to pests and chemicals, corn remains firmly rooted at the center of agriculture.
But the demand for ethanol to replace our dependence on foreign oil may just turn this agricultural juggernaut into an industrial force of nature. It could also open the door to a number of interesting investment opportunities.
Ethanol is most commonly mixed with gasoline to improve the emission quality and increase the octane of fuel. It is derived by fermenting and distilling starch crops such as corn, barley, and wheat. In North America, it is primarily made from corn and wheat using a milling process.
The ethanol boom in Iowa is akin to the oil boom in Alberta, and is drastically altering the farm economy of the Midwest. Why?
President Bush has set a goal of eliminating 75% of oil imports from the Middle East by 2025. Currently, the U.S. imports almost two million barrels of oil a day from there. The plan calls for increasing U.S. demand of renewable motor fuels to 35 billion gallons by 2017, or 25% of current U.S. gasoline demand.
The entire U.S. corn crop could supply ethanol for only 12% of U.S. gasoline demand, or about half of the 35-billion-gallon target. Governments in the U.S. and Canada are funding the development of cellulosic ethanol, which can be produced from switchgrass, wood chips and other biomas.
In 2000, ethanol demand accounted for just 6% of the U.S. corn crop, to produce 1.6 billion gallons. That has risen to 20% of the crop last year to produce 5 billion gallons. And most experts expect the industry to meet the 2012 target of 7.5 billion gallons as early as next year.
How do corn crops and ethanol help out the average penny stock investor? Individual investors looking to jump on the bandwagon have limited opportunities, unless they want to tackle the futures market.
You may not be able to invest directly in Farmer Browns’ 5000 acre Iowa corn field. But you may find companies to invest in that support his or her business. For now, the best place to start is by looking at public companies with exposure to the corn or ethanol business.
Just like the early days of oil and gas, the ethanol industry will eventually produce a number of great buying opportunities for penny stock investors. For example, companies that offer new processing technologies or parts and services for the ethanol industry are just a couple examples that could pop up in the not-too-distant future.
While those kinds of companies may be few and far between right now for penny stock investors, it will not always remain so.
Part of the joy of penny stocks is not always following the herd, it’s keeping your eye out for the next great play; and seizing on an opportunity before the conservative investors on Wall Street do.