Merrill Lynch (NYSE: MER) has launched two indices (1st October) designed, says the company, to offer investors exposure to the biofuels market. The two new indicies, the MLCX Biofuels Index and the MLCX Biofuels Plus Index, provide a greater liquidity, transparency and efficiency than financial instruments currently available says Merrill Lynch.

Many exisitng instruments, says the company, are vulnerable to very negative roll returns, or negative carry, due to the storage dynamics of the underlying agricultural commodity markets. The new indices use a rolling mechanism to spread the buying and selling process over 15 days.  The MLCX Biofuels Index offers exposure specifically to biofuels, while the MLCX Biofuels Plus Index offers exposure to biofuels and conventional fossil fuels

“Our indices have been carefully designed to mitigate the negative roll returns inherent to many agricultural commodities markets,” said Francisco Blanch, Head of Global Commodity Research at Merrill Lynch.  “They also offer additional returns by overweighting crops that produce the most energy in biofuel production, notably sugar and soybeans.”

The MLCX Biofuels Index weights commodities according to production levels and calorific potential, in order to reflect their economic value.  It contains seven commodities commonly used as biofuels feedstock: sugar, corn, soybeans, barley, rapeseed, canola and soybean oil.  The MLCX Biofuels Plus Index adds gasoline and diesel to the commodities in the MLCX Biofuels Index.