Wednesday 21 June 2006

Dear Investor,
We don't usually cover breakfast cereal in the Daily Wealth, but
today we're making an exception...
And while we're on unusual topics...we'll be covering cattle farming
too.
Why?
Because both are related to what could be the biggest trend of the
next ten years...
----------------------------------A corn futures trading frenzy
----------------------------------Yesterday, trading in US corn futures reached record volumes...
Most traders probably never thought they'd see the day...
In fact, a few years ago, junior commodity traders would be utterly
dejected at being assigned to the "corn futures team".
But today, it's the place to be.
And it's all because of the rapidly developing "biofuel revolution",
and more specifically: because corn is great for making ethanol.
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--------------------------------------------With the high cost of oil and increasing environmental pressure, it's
clear that renewable energy is the future. And of all the options,
ethanol now looks like the best bet.
We're already seeing ethanol being widely - and increasingly - used
as a cheap, renewable petrol additive.
------------------------------------The 'bushel' is the new 'barrel'
------------------------------------The US Department of Agriculture estimates about 14 per cent of the
10.55bn bushels of US corn to be grown this year will be used for
ethanol making.
That's up from 11 per cent two years ago, and is projected to rise to
more than 20 per cent in 2007 and beyond.
Dan Cekander, head of agricultural research at Fimat, a broker, said:
If all the ethanol plants that are on the drawing board at the moment
are built, we could be looking at 25 per cent [of the crop] in 20072008 [September/August], and maybe even 35 per cent in 20082009.
Mr Cekander said the current projections for corn-based ethanol
demand could push corn prices to more than $4 a bushel in the next
two to three years.
That's going to send the price of your Cornflakes soaring. And pricy
Cornflakes are just one of many adaptive challenges we face if cornproduced ethanol is the future...
-------------------------------------------------Cattle will have to eat something else...
-------------------------------------------------The ethanol revolution has massive implications for livestock
farming and other related food supplies.
Industry experts estimate that each new 100m gallon-a-year ethanol
plant consumes enough corn to feed 500,000 cattle.
Fierce debates are now raging over the relative priority of food

versus fuel. The rising demand from ethanol producers threatens to

drive up food prices, pitting wealthy western car drivers against
hungry consumers in developing countries.
Next year, for the first time ever, the US (the worlds largest exporter of corn)
will convert more corn into ethanol than it will sell abroad.
Once plentiful, corn supplies could soon be severely stretched,
forcing prices upwards.
---------------------------------------------------------Biofuel investment opportunities are on the rise
---------------------------------------------------------Last week we saw VeraSun - the second largest US ethanol producer
after Archer Daniels Midland - make their initial public offering.
VeraSuns stock climbed 30 per cent on its first day.
Now, two more ethanol producer IPO's are planned. Aventine
Renewable Energy Holdings is expected to be next, in a Nasdaq float
valuing it at $1.6bn, followed by Hawkeye Holdings with a $350m
deal.
And ethanol has attracted the attention of prominent business figures
too: Bill Gates, Microsofts chairman, last year invested $84m in
Pacific Ethanol, which builds ethanol plants.
But future demand is unclear. There are bottlenecks in the
transportation and refining of ethanol for mixing with petrol. And
the current profitability of ethanol plants is not sustainable based on
new production coming on line, said Fabrizio Zichichi at
commodities trader Noble Group.
That said, in the coming years we are likely to see a huge increase in
ethanol use which might offset that dip in profitably and lead to the
creation of efficient infrastructure.
So a word of warning: Although very exciting, this is a whole new
investing avenue with many unique features. If you're considering
ethanol related investing, just make sure you do your homework,
choose wisely, and don't bet your mortgage on it.
And while you're at it, start getting used to Weetabix...
Good investing,
Stephen Edwards
Daily Wealth

Note: This message is not intended as investment advice and the content of it should not be
taken as a recommendation to buy or sell any particular investment. If you are in any doubt

as to the suitability of an investment, you should seek independent financial advice.

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