ETF May Benefit from End of Ethanol Subsidies

Investors looking for a way to capitalize on the U.S. Senate’s vote Thursday to end the ethanol tax subsidies should take a look at the IQ Global Agribusiness Small Cap ETF (CROP).

The amendment, which passed 73-27, would not only end the 43-cent-a gallon tax credit paid to oil refiners for corn ethanol, but also eliminated the 54-cent-a-gallon tariff on imported ethanol from countries such as Brazil and Spain. About 75% of the ETF’s holdings are outside the U.S.

The ETF, which launched March 22, tracks a float-adjusted market cap-weighted index holding agribusiness companies, including those in crop production and farming, livestock operations, agricultural machinery, agricultural supplies and logistics, agricultural chemicals, and biofuels.

Adam Patti, the chief executive of Index IQ, said the ETF would see numerous benefits from passage of the bill. “While we would expect the legislation to be a net negative for domestic ethanol and fertilizer companies, which CROPS own very few of, livestock and foreign ethanol firms likely would benefit, and CROP owns more of these.”

“In addition to livestock and foreign ethanol firms potentially benefitting from the legislation, we expect CROP to benefit additionally by several other factors, including rising food prices, global supply shortages, changing dietary demands in emerging markets, and growing population,” said Patti.

He added CROP does not issue Schedule K-1 tax forms to investors, while many other commodities/resources funds do.

The fund closed up 1.3% on Friday.

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