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Published July 9, 2008 09:21 AM

World Food Shortage and the Ethanol Bubble

NOTE: Some people say Bush's "biofuel" boom constitutes a greater crime against humanity than even his Iraq debacle. The interaction of the Bush led ethanol boom with the crisis of speculation, characterized by a chronic bubble economy, has been utterly disastrous in terms of its impact on the poor and hungry, never mind its negative environmental impact and other knock on effects as governments go into panic mode. Here's the view of a stock analyst.

EXTRACTS: If you fill up with ethanol, every time you pull that SUV into the gas station and pump 22 gallons, you starve a poor person for six months.

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...So what does that mean for investors? When the public and politicians own up to the fact that food for fuel causes world food prices to rise and starve the poor, all those companies currently flying high on ethanol could come crashing to earth. A few of the companies that have been running on the recent ethanol excitement include Monsanto, Potash , Mosaic , John Deere , Archer-Daniels-Midland  and Bunge .
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World food shortage and the ethanol bubble
by Kevin Kersten
InvestorsObserver.com, July 7 2008 http://www.bloggingstocks.com/2008/07/07/world-food-short...

We had the internet bubble and the real estate bubble and now, there is the ethanol bubble. Recently, I ran some numbers on ethanol and to my amazement realized that it is - too use a catch phrase from the environmental world -- not sustainable. Turning food into fuel is just plain silly; and when oil prices come down the ethanol bubble could pop big.

I ran did a little research and found some numbers:

*47% of the Mexican diet is corn
*it takes 2.4 pounds of corn a day to feed a hungry person
*it takes 22 pounds of corn to make one gallon of ethanol
*there are 42 gallons of refined gas in one barrel of oil

Now, a little basic math can be very enlightening. To replace one barrel of oil, it takes 42 gallons of ethanol or (42x22)=924 pounds of corn. That is enough corn to feed one hungry person for (924/2.4) 385 days - a little more than one year.

If you fill up with ethanol, every time you pull that SUV into the gas station and pump 22 gallons, you starve a poor person for six months. Another way to look at a barrel of oil is that it has enough energy to feed a person for the entire year. Using that logic, the much debated Arctic National Wildlife Refuge -- with at least 3.2 billion barrels of oil -- contains enough food to feed the entire world for six months. If you think my estimates are wrong, you're right; the real math is actually worse.

So what does that mean for investors? When the public and politicians own up to the fact that food for fuel causes world food prices to rise and starve the poor, all those companies currently flying high on ethanol could come crashing to earth. A few of the companies that have been running on the recent ethanol excitement include Monsanto (NYSE: MON), Potash (NYSE: POT), Mosaic (NYSE: MOS), John Deere (NYSE: DE), Archer-Daniels-Midland (NYSE: ADM) and Bunge (NYSE: BG).

Kevin Kersten is a Stock and Options Analyst with InvestorsObserver.com. Disclosure note: Mr. Kersten owns and/or controls a diversified portfolio of long and short positions that may include holdings in companies he writes about.

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