How to Play the End of the Ethanol Mandate

If the ethanol mandate is scratched, what will that do to Potash (POT - commentary - Cramer's Take) and Mosaic (MOS - commentary - Cramer's Take) and Agrium (AGU - commentary - Cramer's Take)?

Here's the answer every hedge fund knows: It will not let you raise numbers in the out years.

Right now there is a tremendous struggle going on about near-term and far-term earnings growth and what we can expect to see. Everyone knows when Mosaic and Potash report next week that the numbers will be beaten and the estimates raised.

Everyone knows that the numbers will be far better than whatever drove Bank of America (BAC - commentary - Cramer's Take) up 80% in less than a fortnight, that doubled Wachovia (WB - commentary - Cramer's Take).

But so what? If you scrap the ethanol mandate or if people even think that it will be scrapped, you will see grains collapse just as quickly as oil collapsed when we found a level we didn't need it -- remember, we don't "need" ethanol, but it is mandated.

That means the stocks could get killed despite rising estimates. And, heaven forbid, if they don't rise enough, they will be killed anyway. Any miss and they will be cut in half.

Now, we know that they are no longer at their highs so the risk-reward has gotten better. But 216% and 153% -- that's how much Mosaic and Potash are up in the last year -- that's enough.

I think these stocks are too darned hard here. I think that the headlines for ethanol are all going to be bad. I think that the politicians who sold us out on this fuel know it. I think the politicians who listen to consumers' gripes know it.

I think the mandate's doomed.

If that's the case, the out-year numbers for MOS and POT just got a whole lot worse.

And the out-year numbers for BAC and WB look a whole lot better.

So I would anticipate that and ring the register today.

At the time of publication, Cramer had no positions in the stocks mentioned.

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