Market Note

The Ethanol Market Is Poised for Growth with Obama’

s Support

 We view Obama’
s proposed expansion of the renewable fuels standard as compelling.
 Obama’ s pledge of a $150 billion investment in renewable energy will be a significant
growth catalyst for the ethanol industry.
 Obama will push for nationwide use of E15, fueling ethanol demand.
 We expect a wave of new Flexible Fuel Vehicles (FFV’
s) by 2013 to boost ethanol
demand.
 Government support will continue to drive ethanol, in our view.
 Obama’
s relationship with farmers and ethanol producers is strong.

 The US ethanol output capacity has jumped over 80% to nearly 11 billion gallons per
year since Washington outlined the latest energy act in December 2007. A highlight of
the act supports the blending of 36 billion gallons of biofuels, including ethanol, annually by
2022. Obama has recently established a goal of 60 billion gallons of fuel to come from
renewable fuels by 2030. In addition, President-Elect Obama supports the blender’ s tax credit,
which was recently extended through 2010. According to the Department of Energy, the credit
has saved the average family roughly $300 annually, which translates to $0.29-$0.40 per
gallon.

 Obama has outlined an aggressive New Energy for America plan. The plan includes an
investment of $150 billion, which will be spread over 10 years and will enhance farmer
profitability, inject capital into rural communities and help create 5 million jobs in the green
energy sector. The purpose of the investment is to reduce US dependence on foreign oil by
promoting the development of renewable energy in the form of biofuels, wind and solar. A fair
amount of the investment will be used for both corn and cellulosic ethanol production.

 Obama will push for a minimum of E15 to be used nationwide, fueling ethanol demand.
As a senator, Obama has been working to obtain approval for a higher blend of ethanol in
gasoline. The initiative will continue as he takes Office. Currently, the Department of Energy
and USDA are testing the capability of existing vehicles to run on E15 and E20 blends. The
studies have concluded that there is no negative impact on the catalytic converters. If further
studies determine that there is no adverse affects on automobiles and if the EPA approves
higher blends, the ethanol industry will experience a surge of growth. We estimate that an
additional 5 billion gallons of ethanol would be required to bring E10 to areas in the country
that are not using E10, and an additional 9 billion gallons to enforce E15 nationwide.

(over)
  Flexible Fuel Vehicles and E85 stations are on the rise. Currently, there are 251 million
passenger vehicles on US roadways and all have the capability of running on 10% ethanol
(E10). However, 7 million (3%) of these vehicles have flexible fuel capabilities and can
operate on 85% ethanol (E85). President-Elect Obama has mandated that all new vehicles be
FFV’ s by 2013. Gas stations that sell E85 will also be on the rise, and within the last 13 months
there has been a 28% increase in the number of these gas stations. As the number of FFV’ s
increase, the retail availability of E85 gas stations and fuel is expected to follow. Over 1,800
gas stations, almost 1.2% of the 162,000 gas stations in the US, currently sell E85 gas. The
E85 stations are concentrated in the Midwest. We find the growth in E85 service stations and
the mandate for FFV’ s as compelling, and view these as important catalysts for ethanol
industry growth.

 The corn industry in the US enjoys a favorable regulatory environment. Under

President-Elect Obama, the corn and ethanol industries will continue to benefit from a $0.54
tariff on imported sugar based ethanol, since in the US 99% of total ethanol is corn derived.
The tariff is a part of the recent Farm Bill, which Obama supports and will be in place for an
additional two years. The tariff is important as it will assist in building a stronger domestic
ethanol industry. Also, Obama supports the blender’ s tax credit. The credit was recently
extended through 2010, but it has been reduced to $0.46 (from $0.51) beginning in 2009. The
tax credit has been responsible for an estimated savings of $0.29-$0.40 per gallon of blended
fuel. The blender’ s tax credit has been in existence since 1978, and we think given Obama’ s
support, the credit will be renewed in 2010.

 Barack Obama supports the 2008 Farm Bill, which gives farmers risk mitigation tools
that protect them from weather and market conditions that are beyond their control. The final
version of the Bill contains the Average Crop Revenue Program (ACRE) which was developed
with the National Corn Growers Association. ACRE represents a fundamental reform in how
US commodity programs operate—reducing market distortions, cutting direct payments,
reducing loan deficiency payment rates, and freeing up funding for other priorities. ACRE
allows producers to choose a market oriented, risk management tool that adjusts with market
prices and pays farmers only when they suffer a significant loss in revenue. We interpret
Obama’ s support for ACRE as only positive to the agricultural industry, and in turn for the
ethanol industry.

 We think the ethanol industry is poised for growth. The demand for ethanol and other
renewable fuels will grow significantly and attract broad investor attention. This is evident by
the growth of production and demand for ethanol, and the tone set by Obama’ s administration.

Disclaimer
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ethanol biorefineries. This information and any attachments neither constitute an offer to sell nor a solicitation of an offer to buy any
security or other financial instrument including any limited partnership or LLC interest. The information may be inadvertently incorrect
and is subject to change without notice. Care was taken in the production of this document and any attachments to obtain accurate
information from reliable sources. However, Ethanol Capital Management LLC does not attest to the accuracy of any piece of
information contained in this document or any attachments. In addition, some of the material in this document or in the attachments
may contain opinions of the writer or of Ethanol Capital Management LLC and projections of future events made by the writer or by
Ethanol Capital Management LLC. The opinions, projections and conclusions of the writer or of Ethanol Capital Management LLC may
not be accurate