Interesting story in today's paper about how corn became hotter than oil. The premise for this boom is according to the article's lead in, is "... a high demand for a green substitute for petrol". I think it's actually much more the case of government incentives and subsidies boosting demand and hitting a biofuel supply wall. Agriculture can't ramp up production fast enough to hit mandated targets in Europe, America and Brazil. So for now, the price of biofuel can only one way - up.

What really caught my attention though was their short paragraph on Brazil - a country that is a major player in biofuels - specifically bioethanol - and whose production is just ahead of America. The difference for us is that their quoted companies are much harder to obtain information and trade on and so we don't hear about them much. Compared to say the USA, Brazil is heavily under-represented on the world's stockmarkets in biofuels. Right now, here at AEI we know of and have listed 3 Brazilian biofuel stocks;

i) Brasil Ecodiesel - unusually, a biodiesel company in sugar cane rich ethanol producing Brazil
ii) Cosan SA, a producer, cultivator and harvester of ethanol from sugarcane
iii) Sao Martinho, Brazil's biggest ethanol refiner

So is Brazilian biofuel a good long-term bet?

Some environmentalists have their doubts - understandably - about the potential destruction of natural virgin habitat to make way for increased Brazilian biofuel production. On the other hand, development economists laud biofuels as an opportunity for Brazil to finally get rich - the first developing country in world history to move up to developed world status on the back of agriculture. Whatever your views are, it seems hard not to foresee that more land in Brazil will be made available for biofuel production, because the price that these cash crops can fetch are going up and are forecast to stay high.

If I was to anticipate, my best guesstimate is that Brazil will prosper from biofuels for 10 more years. After that, it is quite possible that any number of technological breakthroughs may have been made in vehicle transport and brought into production to make conventional biofuels obsolete or at least a lot less relevant. These are in order of likelihood; plug-in hybrids, engines running on bio-engineered cellulosic biofuels or just possibly, fuel cells.

So 1st generation Brazilian biofuels are I would argue, a good short to medium term bet, but no more than that for now.