I’m about to tell you about an energy market growing so fast it has some claiming to be--and this is a direct quote--“the Arabs of the Midwest.”

I’m talking about today’s farmers--and the bull market in corn and corn-based ethanol.

Instead of planting by the moon or using other archaic agricultural devices, today’s farmers are using GPS devices and laptop computers in addition to their trusty tractors.

That’s right, farmers are fast becoming as technologically savvy as Cisco technicians--all in an effort to get a piece of this exploding market.

You see, corn prices have remained unchanged for nearly all of the last two decades, hovering around $2.50 per bushel. But over the past year or so, with the eruption of the biofuels market, the price of corn has skyrocketed.

The nation’s heartland has seen a rise in the price of their glorious golden kernels to $3.50 per bushel--with the $4 mark in sight--and with it a rise in revenue and livelihood, including a flood of new farm equipment purchases.

Certainly John Deere (DE:NYSE) has benefited. The stock has climbed more than 60 percent in the past seven months.

Now, having spent my youth on a farm, I am sympathetic to farmers and agriculture in general. I have no quarrels with this price increase and the profits it brings to our farmers. In fact, I think it’s great.

Clearly, though, not all would agree.

Certainly not the biofuel naysayers who saturate the Internet with deceptive stories and manufactured “data.”

Granted, we have an agenda as well.

But this agenda is based on accuracy . . . and ultimately, profits.

It would be a shame to miss out on an opportunity simply because we’re caught up in an avalanche of misinformation.

Corny Myth-Busting

One of the latest attacks on ethanol is based on the assumption that ethanol production causes a reduction in the amount of corn available for livestock feed.

In all fairness, this would be true if we were only maintaining current levels of production.

But that’s simply not the case.

You see, when ethanol first emerged as a gasoline extender some thirty years ago, corn yield averaged about 90 bushels per acre.

This is the data many ethanol opponents like to use.

But today’s crop yield is no longer 90 bushels per acre. Rather, it’s about 135 bushels per acre . . . and climbing.

With advancements in agricultural technology and genetic engineering, we can now harvest more corn…using much less land.

This also allows for additional increases in net energy gain.

Technological advances are upping the ante when it comes to distillers’ grains (DDG), too.

As it stands, up to 33 percent of the corn’s original weight can be reused in this manner.

But that 33 percent is being much better utilized today than it was just five years ago.

You see, these leftover grains contain a certain amount of fat. And with today’s technology, that fat content can be raised or lowered depending upon the end use.

For example, dairy cows and beef cattle require different amounts of fat in their diet to optimize production. This new technology, offered by VeraSun (VSE:NYSE) and a few smaller companies, allows ethanol producers to regulate the amount of corn oil present in their DDGs while simultaneously concentrating the amount of protein.

This means that not only are beef and dairy farmers able to acquire feed as an ethanol coproduct, the feed they get can be tailored to their specific industry. This is a much more efficient use of DDGs.

And the sale of these DDGs continues to grow rapidly.

Take a look:

The Big Picture

Of course, as investors, we’re not naïve enough to believe that corn-based ethanol is going to save the day.

But it’s a beginning. It’s the launching point. It’s one of the early components of a biofuel infrastructure that’s going to happen.

It’s not always going to be dominated by corn. That’s for certain.

Why else do you think the DOE just invested $385 million in six new biorefinery projects that will soon have the capacity to produce over 130 million gallons of cellulosic ethanol annually?

But for the next five years or so, corn will remain a key component of the ethanol industry . . . until cellulosic ethanol comes online commercially.

And that’s when you’re going to see the kind of production necessary to make a significant dent in foreign oil consumption.

Moreover, full biofuel mixes, like E85, will eventually become price competitive with straight petroleum-based fuels--whether they’re made from corn, soybeans or old newspapers.

And as we come closer and closer to that tipping point, domestic biofuel production will continue to create new American jobs and lessen our dependence on foreign oil.

These are benefits that must not be ignored.

And the profits we’ll make along the way . . . the profits we’ve been making over these past few years . . . well, that’s just icing on the cake!

Nick Hodge

"Energy stocks... The only way a human is going to make any money."

-- Matt Simmons, Peak Oil's first and most vocal proponent,
and founder of the country's last pure play energy investment banking firm.

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