Why are Ethanol Investments so Volatile?
Investment in ethanol has seen notable popularity as a way to invest in alternative, non-petroleum-based energy. These investments, while attractive because of their novelty, can be very volatile due to a number of factors. Most ethanol made in America comes from corn, so the price of ethanol manufacturing depends heavily on the price of corn. The price of oil also exerts influence on ethanol prices, since ethanol looks more attractive as an alternative energy source when the price of oil is relatively high. The industry which creates ethanol from American corn is a relatively new one. An unproven industry which makes a new product, however intriguing, will usually be subject to market jitters. Such was the case with the VeraSun® company. After they locked in a futures contract for corn at just under $7 U.S. Dollars (USD) a bushel, the market price of corn fell to less than $5 USD a bushel. VeraSun® announced that because of this, they would experience an operating loss of as much as $
