June 28, 2011
Corn is King these days but prices have been falling over the past two trading sessions as traders fear an end of the U.S. ethanol tax credit. The credit is worth about $6 billion dollars to the energy industry and the powerful ethanol lobby wants the credit extended.
Approximately 38% of America’s corn crop is diverted to ethanol production. Proponents of the renewable fuel claim it makes the country energy efficient while the opposition believes it steals potential food supply and drives corn prices higher. Both sides are right.
At 2.15pm EST in Washington, D.C., senators will vote on the measure.
The uncertainty surrounding today’s vote in the Senate partly explains why Archer Daniels Midland (NYSE-ADM) has been pulling back sharply since early May. Agriculture stocks were also heavily overbought heading into May following a big rally since last fall and profit taking was inevitable.
The biggest producer of ethanol in the United States, ADM has a lot riding on this vote. The stock trades 35% below its all-time high in 2008 and sells at just above its book-value. The company remains a powerful agriculture trading company with top-notch management and a long history of growing its’ per share earnings every year over the past decade.
But the big risk is today’s Senate vote. The stock might be a huge bargain right now or might get even cheaper in a few hours.
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