Corn - Investment Advice

[Danny]

Ok, so I'm reading the WSJ - there is this story that the cash price for corn is about $2 a bushel right now.
A supposed "gold rush" is building with ethanol - yet the price is $2 a bushel. near record low levels...
It's acting like corn ethanol doesn't exist.
Apparently there have been huge surpluses of corn the last 2 years...
Like 2.1 billion bu. surplus this fall alone...largest in 10 years...

Well there is someone that says that after harvest - he expects a rapid price increase and future prices to supply record demand...- maybe 50 cents upside
"We have been saying consistently to store as much corn as you can, because that will be your greatest asset for the next couple years - We believe that the cash prices we see in the next couple months may be our lowest for a very long time to come".

US Dept Agriculture economists pretty much agree - "The cash corn market is on the cusp of a potential sea change..."

Well anyway, this could be a bad decision but I want to know how to play this besides messing with options...are there any easier tools - like etf, Mutual Funds or ? that could play with this, or am I better off getting my account authorized for options and taking a crash course?


Thanks

 

[kumquat]

Fertilizer company's stock. POT, AGU or MOS.

Disclaimer, I hold a lot of POT.

 

[haha]

Well anyway, this could be a bad decision but I want to know how to play this besides messing with options...are there any easier tools - like etf, Mutual Funds or ? that could play with this, or am I better off getting my account authorized for options and taking a crash course?
Thanks

If what you want is corn, you will need a commodity account. There are no equity or index options on corn; you would need buy futures options through a commodity broker, or take a long futures contract.

Not exactly relaxing stuff for a retiree, though I suppose it might work out very well.

Ha

 

[Ed_The_Gypsy]

Advice on commodities: Eat the sweet corn. Smoke the POT.

Use index funds for serious investing.

 

[Alex]

I would be very cautious about investing in commodoties markets. . The only corn I would be buying comes on a cob and runs about 5 for a dollar....

But if you are determined to 'cash in' on the ethanol craze you could buy stock in Dupont or Monsanto - both sell genetically modified seeds.or an ethanol producer - ADM is the largest producer of ethanol - here is an excellent article that I cherry picked this info from
http://www.businessweek.com/technology/content/may2006/tc20060519_225336.htm?campaign_id=rss_null

 

[brewer12345]

I've no idea what the future holds for corn and I want nothing to do with individual commodity speculattions, but you could pretty easily speculate on the future price of corn by opening a futures account as Ha suggests. The thing about futures is that you can (and many do) buy futures using very significant leverage, which magnifies gains and losses. If you wish to do this in a (vaguely) sane manner, put a small sum in the account and buy a long-dated future (maybe 6 months out, if you can get it) and use little or no leverage. Without using leverage, you cannot lose more than the notional amount which you have fully backed with cash. If you use leverage, well, margin calls are a bitch I hear...

 

[HFWR]

Or buy a couple of grain bins, and fill 'em up...

 

[Danny]

Thanks everybody.
I'm realizing I don't have the commodity speculator temperment or the depth of knowledge/experience to come out on top, let alone all the attention I would probably end up spending on it would be a detriment to my other activities like sleeping...

If I was a corn farmer I would do as HFWR suggests and buy more bins and just store and wait for better prices..

I should probably buy some POT - there is really big demand for it.
I read this about it - Pot demand was expected to increase amid a growing biofuel industry...crops grown for biofuel are intense pot users....

I have just now found 2 ETF's that are commodity focused :

DBC - based on six liquid futures contracts on Light Sweet Crude Oil Heating Oil Gold Aluminum Corn and Wheat.

GSG - 24 commodities

Corn is a small factor in both these - maybe a good thing and energy a big part of both...


These and pot would probably be more to my liking Thanks again. Be cool dudes... 8)

 

[Zathras]

For short term gains, corn does look interesting. Beware how long you hold it though.

Corn ethonal is a long term loosing proposition. Work is being done to figure out how to produce ethonal from switch grass which costs much less energy to produce (it is basically a weed).

While that is under developement, corn may return wonderful gains. However, once the process is figured out, the bottom will fall out of corn.

 

[HFWR]

From CNN-Money...

http://money.cnn.com/2006/08/08/news/companies/pluggedin_gunther.fortune/index.htm?cnn=yes

Only about 800 service stations in the United States, out of a total of 168,000, pump E85. There's not a single E85 pump, for example, in all of New England.

You won't be surprised to learn that the big oil companies are not, as a rule, interested in selling E85.

But Wal-Mart (Charts) is. The giant retailer is considering selling ethanol at the eight stations that it operates at Wal-Mart Stores and at about 380 more that it runs as part of its Sam's Clubs division.

 

[brewer12345]

I've never seen E85 for sale, but every gas pump I pull up to has a sticker on it that says "this gasoline contains 10% ethanol."

 

[dylar]

There is a federal law requiring 10% ethanol in gasoline as a giveaway to the ADMs and Cargills of the world. Here in California we tried to get exempted after testing revealed greater pollution and less fuel efficiency, but the Feds aren't ones to confuse the relative importance of public health and profits for their campaign contributors.

edit to correct spelling

 

[HFWR]

There is a federal law requiring 10% ethanol in gasoline as a giveaway to the ADMs and Cargills of the world. Here in California we tried to get exempted after testing revealed grater pollution and less fuel efficiency, but the Feds aren't ones to confuse the relative importance of public health and profits for their campaign contributors.

Than MTBE? Got a link to that study?

 

[dylar]

Than MTBE? Got a link to that study?

"Emissions increased on all 10 vehicle fuel systems studied when ethanol replaced the MTBE in
the test gasolines. The average permeation emissions with a 5.7 volume % ethanol gasoline
were 1.40 grams/day higher than permeation emissions with the MTBE gasoline and 1.10
grams/day higher than permeation emissions with a non-oxygenated gasoline. This is
equivalent to an average permeation emissions increase of 65% with a change from the MTBE
gasoline to the ethanol gasoline and 45% with a change from the non-oxygenated gasoline to
the ethanol gasoline."

Link

 

[Danny]

what is MTBE made from...

 

[brewer12345]

Made from methanol, which is chiefly sourced from natural gas.

 

[MasterBlaster]

what is MTBE made from...

Methyl tert-butyl ether (MTBE) is a chemical compound that is manufactured by the chemical reaction of methanol and isobutylene.

 

[Danny]

Methyl tert-butyl ether (MTBE) is a chemical compound that is manufactured by the chemical reaction of methanol and isobutylene.

not to belabor this and I thank you for your patience and knowledge on this MasterBlaster, but where do babiesmethanol and isobutylene come from...

 

[haha]

not to belabor this and I thank you for your patience and knowledge on this MasterBlaster, but where do babiesmethanol and isobutylene come from...

From the Lord God, Creator of all that is and was and ever will be.

Ha

 

[MasterBlaster]

not to belabor this and I thank you for your patience and knowledge on this MasterBlaster, but where do babiesmethanol and isobutylene come from...

Manufacture of Methanol
Methanol is made by a method different from that used in the preparation of the other alcohol. The naphtha fraction from the distillation of crude petroleum, is used as a raw material for the manufacture of methanol. When naphtha is reacted with a high steam ratio, under pressure and at high temperature, synthesis gas of low methane content is obtained. Most of the carbon from the naphtha is converted to carbon monoxide and carbon dioxide which can be removed from the gaseous mixture to leave hydrogen of high purity.


1000 degC
C + H2O ==> CO + H2
Carbon Hydrogen
Monoxide

When a mixture of hydrogen and carbon monoxide in the ratio 2:1 is passed over a catalyst (e.g. a mixture of zinc oxide and chromium oxide) under high pressure and at high temperature, methanol is formed.



400 degC
CO + 2H2 ==> CH3OH
Methanol



Manufacture of Isobutylene

A stream containing from 8 to 15% by weight of isobutylene and 15 to 50% isobutane can be produced from methanol by using silicalite (S-115) impregnated with oxides of thorium, zirconium, titanium, or manganese.^The isobutylene can be recovered from this stream and used in the manufacture of methyl-t-butylether, butyl rubber, polybutenes, alkylate, maleic anhydride-isobutylene copolymer, or synthesis of 2,5-dimethylhexadiene, an intermediate in the manufacture of pyrethroid insecticides.^The isobutane can be dehydrogenated to produce isobutylene.^The majority of isobutylene is obtained from the C/sub 4/ cuts from steam or catalytic crackers or from field butanes.^Steam crackers produce a stream with 18-32% isobutylene while catalytic crackers produce a stream with 10-20%

 

[brewer12345]

As I mentioned earlier, a LOT of methanol is made from natural gas.

 

[Ed_The_Gypsy]

Dang.

MasterBlaster beat me to the punch. I used to design methanol plants.

MB described naptha reforming to make syngas and the old high pressure methanol process. I don't think either is used anymore anywhere.

As brewer said, we use natural gas today. It is kind of a neat process. Since you asked (ahem!), I will tell you all about it.

Typically, the natural gas is mixed with steam, heated under pressure, then flows down through a bed of catalyst that looks like big beads inside a big (~10" diameter x 40 feet long) high-nickel alloy tube. Said tube is one of hundreds (770 in one plant I helped with) in vertical rows inside a big furnace which heats the tubes like you wouldn't believe. The reaction to make hydrogen and carbon monoxide from methane and steam absorbs heat--a lot of heat. The tubes look dark inside the yellow-hot furnace. The product syngas comes out hot as Hell, is collected and cooled by making steam. (The same plant is used to make hydrogen al by itself. It is by far the cheapest way to make hydrogen.)

After cooling, it is compressed to between 50 and 100 atmospheres and put into a "synthesis loop," where it is recirculated through another reactor (just a big bottle this time). The most common catalyst today is copper deposited on little tablets of zinc oxide that look like rabbit food. The effluent from the reactor is cooled to condense the methanol. Only about 5% of the syngas more or less is converted per pass, so the unconverted syngas is recirculated back to the reactor and eventually almost all of it is converted to methanol. There is some water that comes out with the methanol plus traces of impurities. The raw methanol is made pure in two distillation columns.

And that's it.

As I understand today's situation, most methanol plants operating today are using free gas or gas with negative value. (i.e., gas associated with oil coming up out of the ground. Some countries won't allow such associated gas to be flared anymore. In order to pump the oil--which is what the oil companies really want--they have to do something with the gas. Hence 'free' gas, liquified natural gas--LNG--and 'gas-to-liquids', which include methanol and synthetic gasolene and diesel.) Nobody who has to pay for natural gas can make money making methanol these days.

Ed The Gypsy
Will design methanol plants for food.

 

[Danny]

Thanks Ed, Brew & MB for the short course on methanol, mtbe....
Does the human body and dumps produce similar stuff except in gaseous form....

 

[Ed_The_Gypsy]

Mystic,

Yes, methanol (or wood alcohol) is produced in very small, dilute quantities by natural processes. To be economical, it is best to find a way to start with the highest concentration you can. There is gold in seawater, but it is not economical to recover it.

Ed

 

[2B]

When I first heard of corn ethanol, I thought about moonshining. Corn makes the best liquor but during Prohibition it was discovered that sugar could increase the fermentation rate and make more liquor. The US regulates the sugar imports but not the "motor ethanol" imports. If we "protect" ethanol, it will sure look funny when we try to expain high gas prices. I personally believe we will "find" another solution to our additive question.