The First Biofuel Index Fund

This must be getting hot; the Autoblog guy picked up on it so the media should notice it any day now. UBS and the Swiss derivative firm Diapason Commodities Management have developed an index that they feel should track the cost of bio fuels. The fund is slated to hold positions in the futures markets of agriculture products that can be converted to fuel, notably corn and sugar. They are limited to a maximum amount of exposure for any commodity, the two grades of sugar, an important fuel source in Brazil add up to a little less than 33%. Corn, the source of ethanol here in the states comprises 30% of the fund. Some of the components are counter-intuitive like lumber, the CME lumber contract is for 2x4s, nobody is making bio fuel from 2x4s. It may be that some amount or some component of a fuel may be saw dust or chips and 2x4s may track that component well enough to include them. The CBOT corn contract is for a feed grade corn but a few of the other components are grains consumed by humans, wheat, barley and rice are all exchange traded and I would think that they are relatively expensive for fuel use. With all of these they may be hedging against the unused parts of the plants. Those parts can be converted into fuel and the unused parts would be just as prevalent or rare as the traded product in a supply driven market. Who knows, those markets may simply show the historical volatility that they want.