11 Best Ethanol Stocks and Exchange-Traded Funds (ETFs) To Buy In 2022
Although the environmental benefits of ethanol have been questioned, it is generally seen as a way to lower carbon emissions from cars. More recently, the U.S. Environmental Protection Agency (EPA) has allowed higher ethanol content in gasoline to reduce reliance on foreign oil. Read on to learn the best ways to invest in ethanol for your portfolio.
David Dierking Updated May 14th, 2022
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Why invest in ethanol?
Ethanol, a liquid fuel made from corn or sugarcane, is added to gasoline to reduce carbon emissions and reliance on oil.
Ethanol use is not without critics. It requires corn grown on scarce arable land, and it’s not as environmentally friendly as electric cars. However, ethanol reduces both reliance on oil and greenhouse gas emissions. A recent study found that ethanol reduces life cycle carbon emissions by 40%.
Ethanol is a renewable fuel made from plants. In the U.S, it is derived from corn, but it can also be produced using sugarcane, sugar beet, and other crops. Most U.S. gasoline contains around 10% ethanol. E85 fuel, or flex-fuel, can contain between 51% and 83% ethanol.
The White House announced that it would allow more ethanol in gas this summer to combat high energy prices. Of course, this is just a short-term fix to help drivers, not a strategy to combat climate change, which requires the electrification of cars and reducing reliance on gasoline.
Ethanol is considered an OK, but not great, alternative to fossil fuels in the short term. It burns cleaner than crude oil but needs considerable land, water, and fertilizer to produce. Critics argue that farms pollute water in nearby reservoirs, eliminating any environmental benefits. More corn going to ethanol production also means there is less left for food, which can drive up food prices when inflation is already high.
What are the top ethanol stocks and ETFs?
Some large energy companies like Valero are involved in ethanol, but it’s a comparatively small part of their business, which is devoted to fossil fuels. A few small-cap stocks offer better exposure to ethanol.
Ethanol stock and ETF list
- ELEMENTS Linked To The ICE BofAML Commodity Index eXtra Biofuels ETN (FUE)
- Teucrium Corn Fund (CORN)
- Alto Ingredients (ALTO)
- Andersons Inc (ANDE)
- Aemetis (AMTX)
- Archer-Daniels-Midland (ADM)
- REX American Resources (REX)
- Green Plains Inc (GPRE)
- Green Plains Partners (GPP)
- Valero Energy (VLO)
- MGP Ingredients (MGPI)
Read more about each option.
1. ELEMENTS Linked To The ICE BofAML Commodity Index eXtra Biofuels ETN (FUE)
- Assets under management: $2 million
- 2022 return: 25%
FUE tries to be the product to give you direct exposure to biofuels like ethanol. FUE’s index is composed of futures contracts on physical commodities that are either biofuels themselves or feedstock commonly used in the production of biofuels.
Note that FUE is an ETN, not an ETF. ETNs qualify as exchange-traded products, but they’re not funds. They are bond-like notes usually issued by a financial institution. Instead of paying interest, ETNs normally pay the returns on an index or security. These products usually have few assets and are thinly traded, making them less than ideal as investments. FUE only has $2 million in assets and falls under this category.
2. Teucrium Corn Fund (CORN)
- Assets under management: $296 million
- 2022 return: 36%
Used both in ethanol and food production, corn is one of the most important agricultural commodities in the world. Today, around 40% of all harvested corn is used for ethanol production.
CORN invests in a portfolio of corn futures contracts traded on the Chicago Board of Trade (CBOT) exchange. It diversifies its holdings among three types of futures contracts with different expiration dates.
3. Alto Ingredients (ALTO)
- Market capitalization: $360 million
- 2022 return: -6%
ALTO makes specialty alcohols and essential ingredients used in mouthwash, cosmetics, hand sanitizers, and home cleaning products. It also provides ethanol used in transportation fuels and distills corn oil used in biodiesel feedstock.
ALTO grew its revenue significantly over the same period a year ago, reaching $1.2 billion in 2021 sales. However, the company has struggled to turn that into profit. First quarter revenue and profits missed the market’s expectations. The company is pivoting towards higher-margin products, but capital expenditures designed to generate longer-term growth haven’t produced results yet.
4. Andersons Inc (ANDE)
- Market capitalization: $1.3 billion
- 2022 return: -3%
ANDE is a diversified agricultural company, focusing on logistics and merchandising for several commodities. They entered the ethanol business in the 2000s and now operate five plants across the Midwest, producing 525 million gallons of ethanol products.
Although the market for commodities has been challenging, ANDE’s ethanol business is looking healthy and growing. Management renamed its ethanol segment “The Renewables Group” to reflect its broadening scope. Besides, EBITDA nearly doubled year-over-year in the first quarter.
5. Aemetis (AMTX)
- Market capitalization: $261 million
- 2022 return: -42%
AMTX is a U.S.-based renewable fuels company that produces and distributes renewable natural gas, low-carbon ethanol, biodiesel, and sustainable aviation fuels. Its biorefineries produce about 65 million gallons of low-carbon ethanol per year.
For a little while, AMTX was a big beneficiary of the COVID pandemic. The stock nearly doubled early in 2021 when it began making ethanol for use in hand sanitizers. But the stock gave much of that back and struggled ever since.
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6. Archer-Daniels-Midland (ADM)
- Market capitalization: $48 billion
- 2022 return: 25%
ADM is a huge multinational that procures, stores, transports, and sells agricultural and food products. Although it’s a small part of their overall business model, the company delivers industrial ethanol to refiners via trucks, rails, and barges.
After some struggles during the COVID pandemic, ADM is back on its growth trajectory. The good news is that the Carbohydrate Solutions division, which includes its ethanol business, is growing its profits year-on-year. This segment accounts for about one-fifth of the entire company’s net income, so it’s not nothing. However, ADM is a diverse business and investors would be buying much more than just ethanol.
7. REX American Resources (REX)
- Market capitalization: $522 million
- 2022 return: -13%
REX changed its corporate focus in 2008 when it sold off its chain of electronics stores and entered the alternative fuel space. Today, it produces and sells ethanol, corn, distiller grains, non-food grade corn oil, gasoline, and natural gas.
ESG investors will appreciate that the company is developing a carbon sequestration program to hit net-zero emissions in the future. The stock price fell in 2022 along with the rest of the market, but REX doubled its revenues in 2021 and grew its net income from $3 million to $52 million. We’d like to see REX sustain that level of revenue and income moving forward.
8. Green Plains Inc (GPRE)
- Market capitalization: $1.7 billion
- 2022 return: -13%
GPRE produces and distributes ethanol through three business lines: Ethanol Production, Agribusiness & Energy Services, and Partnership. Its products include industrial-grade alcohol, proteins, grains, and corn oil. GPRE expects to begin engineering a commercial clean sugar technology system in the first quarter. Several new facilities are also expected to come online.
9. Green Plains Partners (GPP)
- Market capitalization: $300 million
- 2022 return: -11%
GPP is the limited partnership formed by its parent company, Green Plains, to provide ethanol and fuel storage and transportation services. It owns or leases ethanol storage facilities and fuel terminals across the United States.
It’s important to note that GPP is a master limited partnership (MLP), so it will look and operate differently from most of the stocks on this list. MLPs are known more for their yields than their growth prospects. GPP has an 11% trailing 12-month dividend yield and has benefited from steadily rising energy prices. The rapid growth in renewable energy development should help drive long-term income potential.
10. Valero Energy (VLO)
- Market capitalization: $51 billion
- 2022 return: 61%
VLO sells transportation fuels and other petrochemical products. With locations across North America and the United Kingdom, the company operates 15 refineries and 12 ethanol plants. This company is clearly not a good choice for investors who avoid fossil fuels for environmental reasons, but it does offer exposure to ethanol.
With surging oil prices, Valero is back to generating record revenues. The ethanol division accounted for just 5% of total revenues in 2021, but 20% of operating income.
11. MGP Ingredients (MGPI)
- Market capitalization: $2.2 billion
- 2022 return: 21%
MGPI is a manufacturer and supplier of alcohol spirits and food ingredients. The company operates three segments: distilled spirits, branded spirits, and ingredient solutions, such as wheat proteins and starches. Its portfolio contains more than 50 distinct brands. The company is involved in the fuel-grade alcohol business, which includes ethanol, though it’s a relatively small part of the overall business.
The best option for investing in ethanol would be investing in the smaller companies that are more dedicated to ethanol production. Investing in large-caps, such as Valero or ADM, would be too broadly focused on the energy sector. You can also consider funds like the Teucrium Corn Funds.
🔔 Learn how to invest in biofuels beyond ethanol.
Author: David Dierking, CFA
David Dierking has been writing about investment strategies using ETFs and mutual funds since 2007. He has extensively contributed to The Street, Investopedia, Seeking Alpha, ETFdb.com, ETF Trends, and ETF Daily News. David received his BA in finance from Michigan State University. He has also been a CFA Charterholder since 2004.
NOT INVESTMENT ADVICE. The content is for informational purposes only; you should not construe any such information as investment advice.