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A $20 Million Pile of Gold… In Iowa

By Tom Dyson, publisher, The Palm Beach Letter
Tuesday, November 7, 2006

A semi pulled into the plant. Workers weighed it on a scale and then the driver pulled up over a metal grate. He jumped from his cab and opened the sluice gates underneath the trailer. A solid stream of gold splashed onto the metal bars.

I was there for an hour. Twenty trucks came and went during this time.

The wind was blowing 40 miles an hour and burning my ears. Corn chaff was swirling in my face and making me squint. The air smelled like a brewery but felt like a Colorado blizzard.

Check out this picture. It's the plant's corn supply. This pile of corn is worth twenty million dollars and will need to last until the next harvest.

This picture is from my trip to Sioux County, Iowa last week. Sioux County is the fourth largest hog- and the second largest cattle-producing county in America. Corn appears to grow on over 90% of the land and everybody that lives here is involved, one way or another, with corn.

You could say – in Sioux County – corn is the currency.

The picture above came from an ethanol factory. From now until Thanksgiving, it will be mayhem at the ethanol plant. It's harvest time and farmers are bringing in the crop. The people at the plant were so busy, they didn't have time to show us around. They told us to sign ourselves in, grab a helmet, and look around on our own!

The plant buys millions and millions of bushels of corn at harvest time every year. The corn is cleaned, threshed, dusted, and stored in a sandbox the size of a football field. In the picture above, you can only see one fifth of the pile. Most of the corn is packed under plastic tarpaulins to the right of the picture.

They won't buy any more corn until next year's harvest. So to ensure supply at this critical time of year, ethanol plants typically pay a two-cent premium over the corn price quoted at the local farmers' co-op.

A few thousand pounds at a time, the corn is run through a basic distilling process. Ethanol is sold to the market. The byproduct - syrup and distillers' grains – is excellent cattle feed. So the ethanol plant has two feedlots. It buys feeder cattle and fattens them up with the syrupy corn leftover.

Finally, the cows' manure is turned into fuel and used to power the ethanol plant.

For me, the pile of corn was the most amazing sight. I couldn't believe that one ethanol plant would soak up so much corn. Yet this pile of corn – gargantuan as it was – was merely a year's supply!

Then I thought of the ethanol industry. There are 106 ethanol plants operating in the United States today. But according to the Renewable Fuels Association, there are also 48 ethanol plants are under construction and seven plants undergoing expansion.

Ethanol is a profitable commodity to produce. Prices are high right now because of the oil boom. Plus, the state and federal governments subsidize ethanol, so it works out even better for the plants. In some cases, ethanol moguls are doubling their money every year making the stuff.

As you'd expect, many people want to get into the ethanol business. It's why they're building so many new plants.

Personally, I wouldn't touch the ethanol business. It's too late. I like the corn business much better. The American ethanol industry is going to consume more corn than ever before over the next few years. Now I've seen how much corn these plants are chewing through, I'm even more bullish on corn.

The three Sioux County farmers I spoke with are all buying corn, while prices are still cheap. And later this week, I'll introduce you to Gary. Gary is a crop trader. He's also buying corn. And he's advising the farmers he works with to do the same.

Good investing,


Market Notes


Last weekend, your managing editor spent 20 minutes in one of the vast wastelands of the Internet… the Yahoo! stock message boards. I wanted to find out what investors think of Wal-Mart.

Market wizards, such as secretposter101stoxinsider, and madmilker60, summed up the general sentiment towards the world’s No. 1 retailer: Wal-Mart’s core customer is under a crushing debt load… he can’t possibly buy anymore Chinese “crap”… and an American recession will send Wal-Mart’s stock price to the basement.

The bears should let Warren Buffett in on the impending retail doom. His Berkshire Hathaway owns nearly 20 million shares of Wal-Mart. Berkshire also recently purchased a ton of stock in Wal-Mart’s main competitor, Target.

Buffett obviously believes the American consumer is healthier than anyone gives him credit for. The DailyWealth take? We’ll side with the greatest investor in history. Best of luck to madmilker60 and the rest of the blockheads.

Buffett bets on a Wal-Mart breakout (10-yr chart):

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