By Lou Ann Hammond

The United States is catching on. Ethanol is the hot tip of the day. Speculators are getting their big, very big, stock dividends from their oil stock and from the way I see it, they are investing in everything ethanol. I’ve been saying for years that ethanol will be big when big money starts investing in the production side. Bill Gates and Richard Branson both have invested in ethanol. Shell Oil company owns 50 percent of Iogen Corporation, a cellulose ethanol production group from Ontario, Canada. Goldman Sachs was the latest to join the Iogen’s venture list.

The Energy Policy Act of 2005 started the corn soaking. Inside the Act is a renewables fuel standard that will require the use of renewable fuels of 7.5 billion gallon by 2012. Currently, the United States is producing 3.9 billion gallons.

J.P. Morgan has said that there are two publicly traded companies, Archer Daniels Midland (ADM) and Pacific Ethanol (PEIX) that are noteworthy because of the significant ethanol production of these companies. In their white paper "Investing in Ethanol", dated May 1, 2006, J.P. Morgan listed the companies with exposure to ethanol. The companies include oil, rail and barge transportation, chemical companies and grain processing companies.

Marathon Oil (MRO) was the only oil company mentioned. According to J.P. Morgan, Marathon Oil has "long had the practice of blending significant amounts of ethanol in its gasoline, given the close proximity of Marathon’s refining assets to ethanol production capactity and the policies of various states in the region that encourage or require the use of ethanol in gasoline." J.P. Morgan goes on th say that Marathon Oil doesn’t have the logistics infrastructure to transport, store and blend ethanol, thus preventing the company from having to pay transportation costs to ship ethanol to its consuming market.

J.P. Morgan expects an incremental revenue for all four US railroads, CSX Corp, Norfolk Southern (NSC), Burlington North (BNI) and Union Pacific (UNP). They also say that Hornbeck Offshore (HOS) services will benefit from the expected shortfall of ethanol to the Northeast.

The one company that is exposed because of ethanol that is expected to do well by J.P. Morgan is Lyondell Corporation (LYO). Lyondell produces MTBE, which has been banned in the US. MTBE is still being used in Europe, but is expected to decline in 2006.

If you want to go outside the United States look to Cosan (www.cosan.com.br). According to their website, the Company’s common shares are listed for trading in the BOVESPA under the symbol "CSAN3". COSAN has entered into an agreement with the BOVESPA to list its common shares on the Novo Mercado. The Novo Mercado segment was designed for the trading of shares issued by companies voluntarily undertaking to abide by corporate governance practices and disclosure requirements in addition to those already imposed by Brazilian law.