With so much debate recently over the topic of ethanol as an alternative fuel, many observers have overlooked an equally important product: biodiesel. In fact, when Mr. Diesel himself (no relation to Vin) invented his engine back in the 1890’s, the contraption ran purely off the oil generated from peanuts. It wasn’t until the 1920’s when large petroleum supplies became available that manufacturers relied on diesel fuel to propel their automobiles.
With time, however, health and environmental studies proved the waste products from diesel engines were harmful to humans, and so gasoline became a popular alternative. While today’s gasoline engines emit far less sulfur dioxide and particulates than diesel, green house gases are released in much greater quantity. These gases are responsible for global weather changes and ozone layer depletion. For the past eighty years however, society deemed cancer and global warming risks acceptable, but now that it takes $50 to fill up a gas tank, there is a mad rush to find alternative energy sources.
Solutions centering around the use of agricultural products have become popular all over the world. In the United States, corn is the leading crop for the production of ethanol blends; Brazil uses sugar for its energy (an idea that is a far better strategy than the use of corn); and Europe has focused mainly on the development of canola oil. With nearly half of the new cars purchased in Europe every year being run on diesel fuel, the use of canola in biodiesel applications has become promising. Recent studies have suggested canola oil contains just as much energy, pollutes far less, and could reduce dependence on crude oil by 60% compared to standard diesel fuels. While ethanol has certainly been capturing most of the headlines lately, it is this ‘other’ alternative fuel that could make major inroads into the United States first. In fact, North Dakota just recently built the first biodiesel plant in the United States.
While the US produces almost no canola oil, Canada is the world’s third largest supplier. Canola futures are therefore traded on the Winnipeg Commodities Exchange, and are not currently traded in the USA. With the recent interest in ethanol causing huge gains in the price of that commodity, it may just be a matter of time before the fever spreads north of the border into the world of biodiesel. With biodiesel having proven advantages over traditional fuels, its acceptance is virtually just a matter of time. This compares favorably with ethanol, where debates still rage (and rightfully so) over its cost/benefit ratio. While many investors now believe crops like sugar to be just as much an energy play as an agricultural play, The Commodity Investor is hereby proposing the same classification for canola. For those looking for a hidden possibility in the world of energy, canola may it.
By The Commodity Investor