This Forgotten Commodity Could Be the Next Big Market Move

Since the war began, I’ve been highlighting a few commodities quietly making big moves beneath the surface of the market.

First it was helium, which has been surging because of supply disruptions tied to the war in the Middle East. Then we talked about tungsten, another strategic metal suddenly getting attention as geopolitical tensions rise.

Today I want to talk about another commodity story that’s developing - ethanol.

And it brings back memories of one of the most explosive trades I’ve ever seen in this sector.

Back in 2014, the ethanol industry experienced the perfect storm. Government subsidies combined with a shortage of ethanol fuel created massive margins for producers.

In a matter of months, stocks like Pacific Ethanol - now known as Alto Ingredients (NASDAQ: ALTO) went absolutely parabolic.

At one point the stock became an 8-bagger.

Naturally, I’ve been keeping an eye on this industry ever since, thinking there may be another setup like that.

Recently, I thought we might be seeing the early stages of something similar.

But the reality is a little more complicated.

The biggest catalyst right now is the war with Iran.

Every day the conflict continues, it puts pressure on global oil supplies. And as oil rises, gasoline prices follow.

When gasoline prices rise, ethanol suddenly becomes more attractive.

Refiners can blend higher ethanol mixes to reduce fuel costs - which boosts demand for ethanol producers.

And there’s another factor at work.

This one comes from D.C.

Ethanol producers are now receiving a major tailwind from something called the 45Z clean fuel tax credit.

This policy was created under the Inflation Reduction Act and it provides tax incentives for producers that manufacture lower-carbon transportation fuels.

The way it works is fairly simple.

Every gallon of fuel receives a carbon intensity score based on how it was produced. The cleaner the process, the larger the tax credit.

In some cases, ethanol producers can receive up to $1 per gallon in credits.

That’s enormous when you consider that ethanol margins historically hover around 5 to 10 cents per gallon.

In other words…

The tax credit can completely transform the economics of the business.

And we’re already seeing that impact.

Two companies benefiting the most right now are:

Green Plains reported $11.9 million in net income for Q4 - a massive turnaround from a $55 million loss the year before.

More than half of their EBITDA came from 45Z credits.

Alto’s results were even more dramatic.

The company generated $28 million in adjusted EBITDA, which was more than the previous seven quarters combined.

About 30% of that came directly from clean fuel credits.

Investors noticed.

Alto’s stock has nearly doubled since reporting earnings.

And there may be more upside coming.

In 2026, both companies expect more ethanol plants to qualify for the credits, which could significantly increase earnings.

Green Plains alone expects an additional $188 million in EBITDA tied to these credits next year.

That’s a huge number for a company of its size.

Here’s the issue investors need to understand.

Strip away the tax credits. Strip away the war-driven boost in gasoline prices. And the underlying ethanol business still isn’t particularly strong.

Historically, ethanol has been a low-margin commodity business.

Margins swing wildly depending on corn prices and ethanol demand.

In good times, producers might earn 50 cents per gallon. In bad times, margins can collapse to almost nothing.

That’s why the 45Z credits are such a windfall. They are essentially propping up the economics of the industry.

But those credits only last through 2029.

Which means investors know the earnings surge may not last forever.

And markets tend to discount that reality pretty quickly.

That doesn’t mean ethanol stocks can’t move higher.

At the moment, valuations are still fairly reasonable. Green Plains trades around 7x EBITDA, while Alto is roughly 10x EBITDA. If oil prices stay elevated and ethanol margins improve, these stocks could continue to climb.

But this is a very specific scenario.

You need:

In other words…

You have to thread the needle.

For ethanol to deliver another 10-bagger run like 2014, the industry fundamentals themselves would need to improve.

And right now, we’re simply not seeing that.

So while ethanol may offer an interesting trade during this geopolitical cycle, it’s not the kind of long-term megatrend opportunity I’m constantly searching for.

Still, it’s another reminder of something I’ve been saying repeatedly lately:

Follow the commodities.

Because from helium… to tungsten… to ethanol…

The biggest opportunities in today’s market are often hiding in the raw materials powering the global economy.

A few tickers to keep an eye on include:

For more aggressive traders there is a rare opportunity for some big short-term gains. The ethanol trade is not for the faint of heart, but it’s also difficult to ignore the huge upside opportunity.

Here’s to the future, 
Matt McCall
Founder, NXT Wave Research