By Tom Konrad, Ph.D., CFA
Because of rising fertilizer prices, farmers are planting more soybeans than corn. Soybeans are a legume, meaning that they can fix their own nitrogen in the soil, meaning that they need less nitrogen fertilizer, the price of which is spiking due to rising natural gas prices. Corn, in contrast, needs more nitrogen than most other crops.
High gas prices are rising because of Putin’s war on Ukraine, which is also preventing Ukrainian farmers from planting this year’s wheat crop, while sanctions are likely to disrupt wheat supplies from Russia as well.
Corn and (to a lesser extent, wheat) are both major feedstocks for ethanol, so investors hoping that ethanol producers will benefit from rising gasoline prices (also caused by the war) may be disappointed.
Agricultural disruptions will likely raise the prices of all agricultural commodities, including soy oil, but the large soy planting in the US will moderate this effect on soy oil. Since soy oil is a common biodiesel feedstock, biodiesel producers will see a relative benefit compared to ethanol producers, who are more reliant on corn.
In short, investors looking to biofuels to benefit because of high oil prices should focus on biodiesel producers, rather than producers of ethanol.
ABOUT: Tom Konrad Ph.D., CFA is the Editor of AltEnergyStocks.com and the manager of the Foundation Green Income Fund.
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