Biofuels Offer a Bumper Crop of Potential

While the carbon available in fossil fuels is a huge source of energy, so is the carbon found in biofuels.

This includes wood discards from construction, material from forest floors, purpose-grown grasses, energy crops, food waste ... and even algae.

These aren’t the traditional sources of energy— like fossil fuels (e.g., oil, gas and coal) — that we’ve grown accustomed to.

But when you heat a home with a wood stove or fireplace, you’re technically already using biofuel.

Now, think even bigger: We can run cars, ships, trains and airplanes on biomass-derived gasoline, jet and diesel fuel.

•  The U.S. Department of Energy recently concluded the U.S. could produce 1 billion dry tons of non-food biomass resources per year by 2040 and still meet the demand for food, feed and fiber.

A billion tons of biomass can:

•  Produce up to 50 billion gallons of biofuels.

•  Yield 50 billion pounds of bio-based plastics, lubricants, industrial chemicals and other products currently made from petroleum.

•  Generate 85 billion kilowatt-hours (kWh) of electricity to power 7 million households.

•  Contribute 1.1 million jobs to the U.S. economy.

•  And keep $260 billion stateside.

The biofuel we’re most familiar with is ethanol, which is typically made from corn. In fact, ethanol is probably mixed into the gasoline used in your car.

The second most common biofuel is biodiesel, which is mostly made from raw vegetable oil. But cooking oil and yellow grease (from restaurants) — and animal fats (from processing plants) — are also used.

From Diesel to Biodiesel

Rudolf Diesel, who invented the diesel engine in the 1890s, experimented with using vegetable oil as fuel. But until 2001, the U.S. consumed only minimal amounts of biodiesel.

Since then, use has skyrocketed — largely due to government incentives.

•  In 2020, the U.S. produced about 8 billion gallons of pure biodiesel.

Biodiesel is common in public transit. In 2008, for instance, Tri-Rail (operated by the South Florida Regional Transportation Authority [SFRTA]) switched to biodiesel with the eventual goal of using a 99% blend. Biodiesel is usually blended with petroleum diesel in various ratios.

•  In 2020, the global biofuels market was valued at $141.56 billion and, aided by government mandates, is anticipated to reach $245.48 billion in 2027.

So, how can investors play the shift to more sustainable fuel sources for internal combustion engine (ICE) vehicles and mass transit?

The only pure biofuels-related exchange-traded fund (ETF) is the ELEMENTS Linked to the MLCX Biofuels Index (Exchange Series) - Total Return (NYSE: FUE) … but it is very thinly traded.

Corn Power

A potentially savvier option is in ethanol production. When it comes to ethanol, America is the undisputed champion, producing over 15 billion gallons in 2019.

Source: Energy.gov

And one American ethanol manufacturer is a $2 billion company with a liquid stock.

I’m talking about Green Plains (Nasdaq: GPRE), an ethanol producer with a production capacity of 1.1 billion gallons per year, made possible with its 11 U.S. plants.

There’s a limit on how much ethanol the government needs to blend with gasoline. So, Green Plains acquired a majority stake in a tech company called Fluid Quip Technologies.

Fluid Quip’s Maximized Stillage Co-Products (MSC) technology allows Green Plains, using just their original corn-crushing plants, to “crack” a kernel of corn (just like an oil refinery cracks a barrel of crude oil) and unlock more yield from the crop.

So, Green Plains can turn corn — and ethanol — into all sorts of products. And it’s working well: Green Plains just installed its third MSC system.

For now, the company mainly uses MSC to make high-protein pet food and feed ingredients. But it’s just scratching the tip of the iceberg of potential.

If you’re looking for a company that could possibly thrive in the post–fossil fuel era, Green Plains looks like it could be a winner.

Let’s look at the daily chart:

Wow! That’s a nice move since the beginning of the year, up more than 200%!

After bottoming out at $12.81 in early January, the stock has been on a steady climb upward and is sitting just off its 52-week high of $43.86, set earlier in November.

And the uptrend looks intact.

I’m not saying you should chase it … but I would strongly recommend looking into pullbacks. Green Plains’ earnings fluctuate as the company — and industry — are leveraged to corn prices … so, we’ll probably see a dip sooner or later.

As always, do your own due diligence before buying anything.

All the best,

Sean

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