Why are ethanol investments so volatile?

Investment in ethanol considered remarkable popularity to invest in alternative non-royal energy. These investments, albeit attractive because of their novelty, can be very volatile due to many factors. Most ethanol in America comes from corn, so the price of ethanol production depends strongly on the price of corn. The price of oil also affects ethanol prices because ethanol looks more attractive as an alternative energy source when the price of oil is relatively high.

The industry that creates ethanol from American corn is relatively new. The unproven industry that produces a new product, however interesting it is, will usually be subject to market nervousness. This was the case at Verus® Company. After the futures contract on corn for less than $ 7 in the US (USD) pounded, the market price of corn dropped to less than $ 5 per bush. Verusun® announced that it will therefore experience operating Loss up to $ 103 million for this quarter. Although this is a significant loss, the market has reacted vastWho in manner and in one day reduced Verusan® stocks by 73%.

volatility of corn prices is not the only problem for investment of ethanol. Many Ethanol manufacturers help government subsidies and laws, such as laws that require ethanol mixing with retail gasoline. However, this federal support is not as safe from the investment point of view as consumer demand. It also does not necessarily indicate a profitable future for the ethanol industry.

Investment markets may feel the uncertainty that is present when companies or products are isolated from the usual economic laws of supply and demand. Ethanol investment then suffers from this latent uncertainty in the form of volatility. Also due to the lack of hard data in the real world concerning sepoptávka ethanol, ethanol investment may be among the first to get out of the finance portfolio when they claim economic times.

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oil and gasoline prices themselves recorded unprecedented volatility in 2000, especially in 2008, when the price of oil and gas price was rapidly increased, followed by an even faster decline. This is an important point that needs to be considered, because when oil and gasoline are relatively cheap, they look less attractive compared to the investment of ethanol. For example, if oil -based fuel is cheaper than its ethanol counterpart, most consumers choose a less expensive option, reducing ethanol and profitability of ethanol investment. The consequence is also true- high gas prices tend to invest in ethanol well- but rapid changes in price greatly contribute to the volatility of such investments.