Can Biofuels And ETFs Weather The Elements?

Biofuel production may be getting flooded out, as harsh weather in the Midwest threatens the well-being of crops, alarming Wall Street investors and related exchange traded funds (ETFs).

The recent record storms and floods have drowned out the possibility of a bumper crop of corn. As America becomes more dependent on biofuels, vulnerability increases with the threat of droughts and constant storms, says Jad Mouawad for The New York Times.

The recent flooding has sent the cost of ethanol up 19% in one month. Ethanol represents around 6% of the nation’s transport fuel, but that number will rise in the next decade up to 20%. If more bad weather causes crop failure, the fuel market would be so stripped as to send prices up at the pump even more.

Recently, around 29 countries have curbed food exports in an effort to ensure their own population has enough to eat at fair prices. As far as rice goes, India, China and Vietnam have banned the export of the grain altogether, report Keith Bradsher and Andrew Martin for The New York Times.

The apparent food hoarding is actually making it difficult for other countries to afford the food they need. People who count on relief agencies are ultimately going hungry. People with money are buying more and more food in response to this epidemic, and are actually adding tot he problem.

ETFs that haven’t been going hungry this year:

• E-TRACS UBS Bloomberg CMCI Agric ETN (UAG), up 14.7% since April 4 inception
• Elements Rogers International Commodity Agriculture ETN (RJA), up 11.2% year-to-date
• Powershares DB Agriculture (DBA), up 25.2% year-to-date
• iShares S&P GSCI Commodity Indexed Trust (GSG), up 42.1% year-to-date

For full disclosure, Tom Lydon’s clients own shares of DBA.

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