Future Ethanol Investment

According to a recently published report by Bloomberg, ethanol prices have for the first time in nine months gone higher than gasoline. The article claims in part that this is a result from the Federal Government's 45 cent tax break for ethanol-fuel blending. Ethanol prices since May have gone up 22%, leading ethanol to become more expensive than gasoline. As a result, more barrels have been produced with the most recent numbers indicating that in the week of August 20th, 810,000 barrels of ethanol were sold.

Ethanol in the short term is a very profitable investment in accordance with the current trend, which indicates that demand is skyrocketing for ethanol. In addition to this, ethanol prices should continue to go up because of the element of scarcity. The ongoing drought in Russia has led the Russian government to halt all exporting of grains until the drought is over. The current financial incentives have laid the groundwork for significant monetary gains for producers of ethanol.

In the long term, however, it remains uncertain how profitable ethanol will be as the EPA has recently announced that they are going to investigate the effects of having as much as 15% ethanol in gasoline on vehicles, lawnmowers and boats. This may lead to the possibility of a ban on E-15 vehicles that specifically rely on gasoline mixed with 15% or more ethanol. The U.S. House Ways and Means Committee is also considering legislation regarding whether or not to lower the tax break by 20% while simultaneously promising to continue tariffs on foreign imports of ethanol.