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Editor's Note: Jon D. Markman writes a weekly column for CNBC on MSN Money that is republished here on

TheStreet.com.

After decades of decline and disrespect, corn is suddenly the hottest commodity in America.

No longer just an ear to eat during the summer with salt and a square of butter, it's now considered the answer to all the biggest problems of the day, from energy independence to global warming. Politicians praise it, Wall Street supports it, foreigners envy it and farmers can't plant enough of it.

America's got yellow fever, so you just know there's a way for us cynical city folk to make a buck off it.

Check this out: Last week, the federal government reported that U.S. farmers intend to plant 90.5 million acres of corn this spring, the greatest amount of corn acreage since 95.5 million acres were planted in 1944. That's a 15% increase over the 2006 acreage of 78.3 million. Although every farm state has indicated it will grow more corn, the biggest boost will occur in the Southeast, where growers will switch from cotton. Elsewhere, farmers will switch tens of thousands of acres over from wheat and soybeans.

In plain English, there's a mess of corn on the way -- and the boom has a lot of unintended consequences that may not fit well with the primary agenda of those who believe in its role as a "green" alternative to imports of foreign oil and gas.

The Corn Industrial Complex

The driver for the corn frenzy is a huge boost in government support for the production of ethanol, a fuel that can take the place of gasoline in many cars. The Renewable Fuels Association pegs current annual U.S. ethanol production at 5.6 billion gallons but observes that an additional 6.4 billion gallons of capacity is either under construction or in development.

Here is where the numbers get interesting. Bank of America analysts figure that ethanol production will jump to 10 billion gallons per year in 2010, or double the level of 2006. The analysts believe that increase would require the production of an additional 2.25 billion bushels of corn per year, or about 21% of the entire 2006 harvest of 10.5 billion bushels.

The production of corn currently outstrips the added demand. But Bank of America analysts figure that the supply-demand balance will shift over the next year, pushing corn prices up by $1.50 or more by 2008 from their current perch at $3.54 per bushel. That would put prices well above the record levels of $4 per bushel last seen in 1995.

Since most of you are not corn futures traders, the reason you should care is that every $1.50 increase in prices adds around $405,000 in annual income to a typical 2,000-acre farm, according to analysts. It would mean a real secular change to the farm belt, allowing farmers to buy more seeds, pesticides and equipment -- and lifting the value of everything from Midwestern residential property to banks and retailers.

In other words, expect the new corn industrial complex to become a major nexus of investment and of success in the Midwest at a time when the manufacturing economy is disappearing and even technology is faltering. It's morning in Des Moines, investors.

Catering to the Caucuses

If you doubt that such a big shift could really occur, just cast your mind ahead a year and consider the importance of Iowa to the presidential aspirations of a burgeoning field of both Democrats and Republicans. In an attempt to woo the farm families whose support at caucuses will make or break many campaigns, current congressmen in the race are bending over backward to funnel federal grants and subsidies to the Corn Belt.

I hesitate to note that they're all ears, because that's just a cheap joke, but what else can you say about someone like Sen. John McCain, an Arizona lawmaker who has long complained about corn and ethanol subsidies, suddenly trying to cozy up to the cobs?

As recently as November 2003,

Fortune

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quoted McCain as saying, "Ethanol is a product that would not exist if Congress didn't create an artificial market for it. No one would be willing to buy it. ... Ethanol does nothing to reduce fuel consumption, nothing to increase our energy independence, nothing to improve air quality."

But by the middle of last year, his tone had changed a bit, according to an

Associated Press

report. "I support ethanol, and I think it is a vital ... alternative energy source not only because of our dependency on foreign oil but its greenhouse gas reduction effects," he said in a speech in Grinnell, Iowa.

McCain's main beef, besides the subsidies, is that ethanol produces less energy than the oil and gas used to generate it. And despite his flip-flop, he's largely correct. Not only does the corn refining process use a stunning amount of energy and produce a lot of toxic residue, the growing corn also happens to demand a lot more fertilizer and pesticides than wheat, cotton and soybeans. It also has the effect of cutting way down on the amount of soybeans available for another key alternative energy source -- biodiesel.

When capitalism combines with cronyism and do-goodism, there's no stopping the train, however.

Fortune

reports that more investment money poured into Iowa in 2006 than into New York, a state with six times the population, and the unemployment rate there is essentially negligible, at less than 3.5%.

The Other-End-of-the-Bull Market

The best way for equity investors to play the corn rush is probably through companies that make fertilizer, seeds and pesticides. Although most are already up a lot over the past year, many are still undervalued and could have a long way to go. The market for fertilizer is pretty constrained right now, as farmers need up to 20% more than usual to support the increase of 10 million acres of plantings, and environmental issues have cut the amount of phosphate and nitrogen produced.

Corn uses nearly 50% more nitrogen per acre than cotton and 22 times more than the amount needed by soybeans. Corn already accounts for 40% of total U.S. fertilizer demand, so figure that that demand for all that stinky stuff is going to grow exponentially.

You may recall that back in the fall, I recommended several chemical makers focused on the ag biz, such as

DuPont

(DD) - Get DuPont de Nemours, Inc. Report

,

Celanese

(CE) - Get Celanese Corporation Report

and

LSB Industries

(LXU) - Get LSB Industries, Inc. Report

, and all are up 30% to 50% since. They can still be bought on dips, but you should add some others to your list.

On its current dip, buy fertilizer maker

CF Industries

(CF) - Get CF Industries Holdings, Inc. Report

, which trades at a forward earnings multiple of 14 times despite growing upward of 25% annually;

Mosaic

(MOS) - Get Mosaic Company Report

, which trades at forward earnings multiple of 12 times despite growth upward of 50%; and European seed and pesticide specialist

Syngenta

(SYT)

, which trades at 19 times the coming year's earnings.

On dips only, you can also consider red-hot stocks

Terra Nitrogen

(TNH)

and

Terra Industries

( TRA).

As for stocks whose charts are not quite so extended, consider tractor maker

Deere

(DE) - Get Deere & Company Report

and popular rural retailer

Tractor Supply

(TSCO) - Get Tractor Supply Company Report

.

And finally, for a microcap with a lot of potential, consider

CECO Environmental

(CECE) - Get CECO Environmental Corp. Report

, which makes the most popular brand of air-filtering equipment for all the new ethanol plants being built. It's trading at 14 times earnings and growing at about an 18% clip.

At the time of publication, Jon Markman did not own or control shares of companies mentioned in this column.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider CECO Environmental to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices. Jon D. Markman is editor of the independent investment newsletter The Daily Advantage. While Markman cannot provide personalized investment advice or recommendations, he appreciates your feedback;

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