Obama vs. McCain: Which Candidate is Better for Ethanol and Equipment Companies?

by: FP Trading Desk August 10, 2008 | about stocks: AG / CAT / CNH / DE / FINGF.PK / GRU / JJG / TMTNF.PK    

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America’s ethanol subsidy program that was fuelled by President Bush’s signing of the Energy Policy Act in August 2005 has been great for heavy equipment companies with exposure to agricultural equipment. Since then, the biofuels push and boost in grain demand that is also being supported by new protein-rich eating habits in emerging economies has driven shares of Deere & Co. (DE), AGCO Corp. (AG) and CNH Global NV (CNH) up more than 100% on average. Industrial equipment names like Caterpillar Inc. (CAT), Finning International Inc. (FINGF.PK) and Toromont Industries Inc. (TMTNF.PK) haven’t done quite so well, but are still up closer to 50%.

In a research note, Desjardins Securities analyst Benoit Poirier said:

Companies that cater to farmers and other agricultural buyers have significantly outperformed industrial machinery manufacturers and distributors.

However, he noted that so far in 2008 the downturn has been worse for agriculture stocks than it has been for construction and mining equipment companies.

But with the U.S. presidential election just a few months away, things could change quickly for ethanol and equipment firms. So investors are being advised to watch the outcome closely given the expected impact on ethanol production, grain prices and heavy equipment demand.

Barack Obama is good for corn-based ethanol while John McCain is not, Mr. Poirier told clients.

Among Senator Obama’s decisions that involve ethanol, the analyst highlighted his opposition to import tariffs against Brazilian sugarcane ethanol and his vote in favor of the 2005 Energy Policy Act. But he didn’t attend the Energy Independence and Security Act of 2007 vote, which set out to increase the sale of biofuels and introduce them more into commerce. The presumptive Democratic nominee also recently said:

If it turns out we need to make changes in our ethanol policy to help people get something to eat, that has got to be the step we take.

Meanwhile, Senator McCain asked the Environmental Protection Agency to reduce ethanol production requirements in 2007. He also opposes ethanol subsidies and the barriers to Brazilian exporters, Mr. Poirier said, noting that the Republican candidate therefore presents more risk to the corn-based ethanol industry.

The analyst said:

If he were elected president, he would be able to select a partisan EPS secretary to decide on crucial ethanol policy matters.

So while support for corn-based ethanol has lost some steam as food prices rise and doubts about the benefits it has for reducing greenhouse gas emissions remain, Senator Obama is expected to at least maintain current regulations. If he opts to support ethanol and corn producers further, some of those stocks could have plenty more upside. If Senator McCain is elected, the sector will likely face some disruption.

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This article has 9 comments:

  •  
    Aug 10 10:08 AM
    On balance, McCain is the best (of the worst) candidates for the stock market in general. Obama's talk is that of a socialist and while McCain is no great shakes, as in the past we are given the usual choice. Who is the least likely to do damage? It is unfortunate, but Politics isn't a choice for people with talent. We get the dregs of society. A look at the vermin we have running the Congress, in both parties should be convincing enough. That a martinet like Harry Reid and a douche bag like Nancy Pelosi running the House convinces me that not a member of congress could run a business and turn a profit. When Reid announces to the world that "oil and coal make you sick!" and they refuse to allow drilling for oil inn spite of $4.00 gasoline, it shows how far from reality these people are.
    They live cloistered lives, are driven around in S.U.V.'s and Limo's, fly in private jets and then tell the rest of us how to live our lives. If the American people had any brains, they would toss out ALL the bums, of both parties and start over.
    Reply | Link to Comment
  •  
    Aug 10 11:56 AM
    You have a link for "Obama's talk is that of a socialist"? McCain's apparent desire to bomb, bomb Iran (see YouTube) will make $4 gasoline the good old days.
    Reply | Link to Comment
  •  
    Aug 10 12:03 PM
    While I understand the focus of this site is financial, one would hope that readers could redirect their attention and focus on the issues facing future generations. The production of ethanol consumes huge amounts of water, huge federal subsidies and greatly inflates the price of grain stocks to the detriment of a large percentage of the world's population.
    It benefits to society are questionable (with the exception of ethanol contained in beer and wine). ;-}
    Reply | Link to Comment
  •  
    Aug 10 07:09 PM
    I am so tired of self centered live for the buck assholes! You are aware of what bush did. I make money and want the rest of the world to live also
    Reply | Link to Comment
  •  
    Aug 11 07:30 AM
    I disagree with everyone who is concerned with the rest of the world. The Russians could care less about lower oil prices for US.

    I cannot remember when any nation in Africa or Asia did anything for me or US citizens.

    We have spent nearly one trillion dollars on the current Iraq war and now we learn that Iraq has 94 Billion dollars in oil revenue and they are not using it in the reconstruction of Iraq. You can expect Iraq at the next OPEC meeting to keep prices high.

    Every member of OPEC has screwed us.

    I am for ending ALL foreign aid and NO MORE MILITARY AID. If the rest of the world wants something from us...LET THEM PAY FOR IT.

    I have seen homeless on the beaches of Oahu, Hawaii. Detroit is a mess and Wilkes-Barre/Scranton, PA, is not far behind. I have seen the slums of Philadelphia, heard the requests from the food banks in Iowa and the depression in real estate in Florida.

    I do agree with one statement, which is, THROW THE BUMS OUT OF OFFICE WHO ARE RESPONSIBLE FOR THE MESS WE ARE IN.

    John McCain is one of the jerks who should be given his walking papers. Anyone who thinks McCain would be a good President is either stupid or in bed with the guy. You know what I mean.

    God Bless America.
    Reply | Link to Comment
  •  
    Aug 12 10:03 AM
    Leave the Daily Kos screeds at the door. This article concerns post-election investment strategies in enthanol and agricultural-equipment companies.

    I think Poirier's assessment will prove incorrect. Big Corn, just like Big Sugar, can't wean itself from sucking off the federal teat, regardless of who will become prez. As for agricultural equipment, projections are always overstated, and I expect worldwide market saturation to come about sooner than everyone anticipates.
    Reply | Link to Comment
  •  
    Aug 12 04:08 PM
    Traditionally, the Republican solution to the energy crisis is to increase supply. We are clearly seeing this with McCain and his drill ANWR and US Coast policy as well as supporting clean coal technology. If you think McCain is going to win in November go long on exploration & production as well as oil field services and deep sea drillers.

    On the other side of the coin, Democrats traditionally have advocated a policy of decreasing demand for oil and punishing oil companies. We clearly see this in Obama's campaign with his increased CAFE standards, windfall taxes for oil companies and ending E&P tax breaks. I you think Obama is going to win, short big oil comapnies and go long on the hybrid car builders.
    Reply | Link to Comment
  •  
    Aug 13 03:10 AM
    Obama's energy plan is mostly a pander. Obama paints the oils as evil to get votes. His idea of lowering prices by tapping into the meager volume of the SPR is a total joke but he believes this populist approach will win votes. NoBama.
    Reply | Link to Comment
  •  
    Aug 13 05:27 PM
    I'll support whichever candidate leads us to energy independence and more environmentally responsible energy solutions. For me, the solution to both of those goals lies in ethanol. We are continually finding new sources of ethanol and are constantly improving the efficiency of our extraction methods.
    Reply | Link to Comment
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