I can't reply to private messages. I only have the basic membership Sorry.
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I wish I could access this article. The headline is certainly interesting. Imagine US ethanol exports having an impact on international shipping.
International - US ethanol rally breathes life into sluggish freight market
PS: in my previous post, I came up with the total exports number by adding the drop in inventory (263k barrels) together with the total weekly surplus production (819k barrels) to come up with a total of 1082k barrels.
It's exports (most likely to Brazil) that's not only eating up the surplus production, but also eating up the inventory levels.
Week over week drop in inventory level:
17335k - 17072k = 263k barrels
Total produced = 970k barrels/day = 6790k/week
Total consumed = 854k barrels/day = 5978k/week
Total surplus produced = 117k barrels/day = 819k/week
Total exports = 1082k barrels (15.94% of weekly production)
And why do I say most likely to Brazil? Simple. See the news article I first posted yesterday.
"Bad weather in Brazil has hurt crop growth, with yield down 9% from year-ago levels. As a result, sugar production from crushed canes dropped 28.5% year-over-year during the first half of November, while ethanol output fell 5.1% to 1.1 billion liters year-over-year."
Speaking of variables, it looks like the 2nd largest ethanol producing country is going to see falling production levels at the same time as their domestic demand is increasing.
UNICA: Brazil Ethanol Production Drop as Demand Improves
NEW YORK (DTN) -- The Union of Sugarcane Industry Association, Brazil's largest trade group for sugarcane and ethanol producers, said in its biweekly update report issued Tuesday, Nov. 25, that sugarcane processing in the country's South-central region slowed during the first half of November because crop failure led to low yield and diminished productivity.
Bad weather in Brazil has hurt crop growth, with yield down 9% from year-ago levels. As a result, sugar production from crushed canes dropped 28.5% year-over-year during the first half of November, while ethanol output fell 5.1% to 1.1 billion liters year-over-year.
Source
Wade did you see the post I made on Friday? I don't have a lot more to add to that. Current daily and weekly numbers are great. They're well over double the daily/weekly numbers we saw early in the quarter. At one point in the past 10 days the daily margin was almost triple the $0.50 low we saw on October 1st. Whether the average for the quarter ends up higher or lower than Q3 remains to be seen. I currently have it @ $0.858 (making some assumptions for today) and climbing around 1.2 cents a day.
There are so many factors in play right now. Rail congestion. Tank car shortages. Winter storms. I just read that the upper Mississippi has already frozen over this year, way earlier than normal. That means even more pressure on the rail system because they can't move grain (including corn) by barge in the effected states. The price of ethanol. The price of corn. The uncertainty over the future of the RFS. Export demand. The price of oil and whether OPEC will cut production. I don't think anyone can predict where things will be come the end of the quarter. It's still 5 weeks out from now.
For those who are interested, the PEIX margin hit $1.414 today. Last week's average was $1.364
Some timely comments from Rick Kment @ DTN
Spot ethanol prices shot higher once again with prices in most regional hubs posting double-digit price surges. The full range of prices ranged from 7 cents higher to 19 cents per gallon, while most locations posted prices 17 to 19 cents per gallon higher.
The concern about gaining access to spot product is sparking widespread market support and could continue through the early holiday season.
Additional concerns about recent snow slowing progress of trains in some areas may add even more concern to ethanol buyers about meeting needed supplies.
and on the Neeley model:
Ethanol plant profitability bounced higher following the higher ethanol rack prices at the end of the week. This helped to push net margins to 63.1 cents per gallon as traders look at moderating corn prices and still hot ethanol markets pushing buyer interest higher. The hypothetical plant is used to measure how changes in commodity markets might affect actual plant margins.
If the NorCal price pushed 19 cents higher today, PEIX net margins should be right in that same range or even slightly higher. A 19 cent gain today would push the weekly gross margin to above $1.40
As is often the case of late on Fridays, PFL has not updated their daily commentary for today.
If someone has the NorCal (or alternatively, LA) ethanol price for today, I would greatly appreciate it of you could post or PM it to me. Thanks!
This is where the problem starts. The EPA didn't rule for or against anything today. They delayed their final rule yet again. Here is the exact wording of their PR release:
Today EPA is announcing that it will not be finalizing 2014 applicable percentage standards under the Renewable Fuel Standard (RFS) program before the end of 2014.
EPA Press Release
Their initial proposal last November was a substantial decrease. The entire delay since has been due intense lobbying against that decrease. The result has been delay after delay on any decision.
You're expecting a rational, unmanipulated market.
The fact that most people trading ethanol stocks don't even know the price of corn (let alone how to calculate a production margin) leaves the stock wide open for manipulation and herd mentality.
Twice this week we've seen herd mentality on the heels of manipulative headlines. The first one was all about ethanol production increasing, while totally ignoring export demand. The second presented today's news with a real spin, suggesting that the bottom just fell out of the ethanol market when the exact opposite it true. Once that reaction happens, the manipulators move in and keep it churning, looking to scalp off both ends of the reaction. Naked short and sell into the drop, then cover and go long at the bottom when they can't force it down any more.
The market is not rational in the short term. It's emotional, and it can take something out of context and run with it, while the big players in the background sit back and make a killing. It's like a lovers quarrel. The market gets so caught up and emotionally bent out of shape on one phrase or sentence that it completely loses sight of sanity. The pros with big money know how to play that like a fiddle.
The quarter got off to a bad start. Current prices are soaring but the quarterly average to date is still low due to the first 6 weeks.
BTW ethanol is exploding. Dec futures just hit +$0.11 on the day.
Some weekly friday numbers (as of this morning)
Iowa:
$1.39 margin
$2.30 selling price
http://www.ams.usda.gov/mnreports/nw_gr212.txt
Nebraska:
$1.41 margin
$2.30 selling price
http://www.ams.usda.gov/mnreports/nw_gr213.txt
Selling prices from plants in other states:
Kansas: $2.43
Minnesota: $2.30
S. Dakota: $2.31
Eastern Cornbelt States: $2.43
http://www.ams.usda.gov/mnreports/lsdethanol.pdf
Ethanol looking like it could break a $0.10 gain on the day. Corn relatively unchanged.
I suspect the number for the final rule will be very close to taking the year's consumption to date and extending it through the end of the year.
Interesting thing here is that ethanol hasn't faltered. Still up $0.07 from yesterday. Makes you kind of suspicious that big oil has been told something that's keeping the pressure on ethanol.
Translation: We screwed up so bad that now we're going to stick our head in the sand until the end of the year. Once we know how much ethanol is used, that will be the mandated amount.
Yesterday I think the ethanol futures traders were sampling the ethanol a little too liberally. Today it's the corn futures traders.
Seriously, are they all drunk? Someone keeps trying to bid corn up 10 cents across the board. Moments later it falls back to 2 cents up. Been going on for a while now.
On the other hand, in this day of class action suits directed at public companies over unmet expectations, who can blame any company for zipping it? The investor attitude out there is that too many feel they are entitled to sue a company if they lose money on their stock purchase. The ambulance-chaser mentality of the legal profession are willing collaborators in the process. They really don't care whether there's any basis for a class action. They just see it as a opportunity to extort money in trade for making it go away.
A company like PEIX in an industry as volatile as ethanol is probably very wise in keeping it zipped. The alternative would be facing the prospect of a class action every time the ethanol market takes an unforeseen twist and heads in a different direction than the tone of expectations set by the company.
A sad reality, but only too true. Unforuntately, no one, including the lawyers, are willing to launch a class action against the real criminals, who are free to manipulate the market at will. The internet has brought a whole new class of manipulator to the market, who with a large following on twitter and an article on an online website such as the likes of Motley Fool, can send a stock into a dizzying spiral on virtually no facts, just pure BS spun to sound like analysis. We're watching that unfold right now, between yesterday and today.
Especially 3 days prior to op ex. Who woulda thunk it? Well it's not like the weekly average production margin so far for this week is at $1.38 or anything
. . . oh, wait! It is!
(and the cattle are stampeding because ethanol is now rebounding after a one day correction. Like I said, the market is rarely sane. Get 'em stampeding and the collective intelligence of the herd drops to zero every time)
Remember back in early October when the board was discussing the possibility of exports increasing dramatically? :D
(oops, it's even more, my first iteration forgot that prduction and consumption numbers are daily, not weekly) Here's another way to look at it.
Ethanol production/day: 970 thousand barrels
Ethanol inputs/day: 854 thousand barrels
Difference: 116 thousand more barrels produced than consumed domestically/day. That's 812 thousand barrels/week
Draw down on inventory week over week: 17,705- 17,335 = 370 thousand barrels
Add the excess production not consumed by domestic markets for the week to the draw down on inventory and you get 1.182M barrels unaccounted for.
Do you think that just might be exports?
My conclusion would be that export demand is not only sucking up any production surplus generated, the demand is strong enough that it's drawing down on inventory. If the rate continues through the balance of the year, exports could well exceed 35M barrels instead of 19.45M.
And we don't know what the final RFS will be yet. Odds of it going lower than the original number released last November? I would dare say zero. Odds of it increasing to at least 14B? What do you think? I think it's pretty good, if not higher. Add those increasing exports, and there's a very real danger there could be a production shortfall, not a surplus.
But hey, I didn't dump my shares today and then announce to the world that ethanol production is overshooting demand. But then why would I, especially when the numbers that came out today suggest the opposite.
Well, if it took him until today to draw that conclusion, I have to ask why. Nothing substantial really changed in terms of the overall picture. I wonder what he thought the total production would be for the week that today's number would have shocked him?
Exports for the year as of the end of August have totalled 12.969M barrels. If I use that average and extend it for the year, that's 19.453M barrels. There's 42 gallons in a barrel so that's 0.8 billion gallons exported.
That's 14B gallons left for domestic. Assuming the run rate this week remains constant through the end of the year.
Three thoughts about that:
1. If I was an ethanol producer, I would of ran and sold every gallon I could the past week.
2. The RFS will have a lot to say about what the final demand will be.
3. As I alluded to earlier, how much did things really change this week? Production increased by a whopping 24k barrels over last week, from 946k to 970k barrels. That's just over 1M gallons. Extend that out over the final 7 weeks and you get an increase of a WHOPPING 8 million gallons.
Was a projected increase of a whole 8 million gallons over the balance of the year as a result of today's numbers REALLY enough to suddenly cause a panic about overshooting the mark by 0.8 BILLION gallons? That's 800 million gallons, not 8 million.
I smell something. Do you?
Low volume day so far. 654k shares traded (average daily volume of late is 1.81M).
Meanwhile as was already pointed out, institutional holdings increased dramatically in Q3. That includes buys and sells right up to the time of the bottom of the drop in ethanol. Keep in mind that Vertex One added close to another million shares in October. These numbers are as of Sept 30th.
Institutional holdings
Quite simply, PEIX sells into a different market. If you want to follow the daily West Coast ethanol prices, this report comes out daily about an hour after the market closes. You can get a more thorough report from OPIS, but that costs $$$
PFL Daily Report
The two indicators for the West Coast is NorCal on the first page (that's the main market PEIX sells into). The other indicator further down is the Pacifc Northwest price. That's the secondary market PEIX sells into.
Note that yesterday's bid/ask for NorCal was 2.680/2.700
As for MidWest/Eastern markets, they're more closely tied to the prices put out weekly by the USDA. You can see those prices here. They call it a "daily" report, but the plant prices are only actually adjusted on Fridays.
National Daily Ethanol Report
Normally this big of an offset in prices would drive increased ethanol shipments to the California market. However, rail pressures due to oil shipments (the impact of no Keystone pipeline) and seasonal grain shipments has handcuffed the rail system. We saw the same thing last fall, only this year's grain crops are bigger than last year. So, MidWest ethanol plants are having a difficult time shipping their ethanol. That drives up overall national prices. It drives up West Coast prices even more, as there is nowhere near enough ethanol production on the West Coast to meet demand.
In other words, the PEIX West Coast model is paying off big time right now. There's a big premium in the production margins for West Coast ethanol producers right now.
We can expect turbulence in the weeks ahead. A warming spell will ease at least some of the pressure on the rail system. Another dump of snow exacerbates it. But regardless, the pressure to keep moving oil and grain isn't going to ease from now until the Spring.
Then take a look at Q1 this year. Keep in mind that PEIX no longer has 7M+ warrants hanging overhead. If anything near the current production margin holds, we're going to see Q1-like gross profits, but this time, without the $35M non-cash hit from a FVA for 7M warrants. Even if prices fall somewhat, we could well see Q2 numbers (again without the same scale of damage caused by any big FVA due to the substantially reduced number of remaining warrants).
Then factor in two more things:
1. Dramatically reduced interest payments/quarter due to the pay down of debt
2. Madera didn't come on line until the second half of Q2.
This is the value side of PEIX. The unknown is always the market prices as well as the rail situation. But all things considered, I like the potential.
In addition, Kinergy has been selling into a rising market all this quarter. It sold into a falling market most of last quarter. While we don't know the total percentage of Kinergy open buying and selling (as opposed to the percentage of their overall sales that is straight fee for service) we do know it's enough to affect the PEIX bottom line. And for the past 7 weeks, they have to have been booking some decent profits. Even if the market starts to fall, any profit they booked should more than offset any potential losses for the balance of the quarter on the Kinergy side of the business.
Does that explain why you can't straight-out compare PEIX to MidWest producers?
Bears attempting to befuddle and confuse the market with Nov options expiring this week?
Or perhaps, simply because the market is rarely rational?
The Madera plant is in California
Total demand for ethanol across the US is outstripping production
Total US production increased
Nov 7th 946k barrels
Nov 14th 970k barrels
While inventory shrank
Nov 7th 17,705k barrels
Nov 14th 17,335k barrels
Total US production up 24k barrels while total US inventory decreased 370k barrels. In other words, demand outstripped production by 394k barrels for the week ending Nov 14th.
I haven't looked at the export numbers, but that's got to come into play :D
Yup. Once the "sell the oil news cuz I don't understand West Coast ethanol" crowd is done, we should see a continuation on the upside.
West Coast Ethanol stocks fall from 2.376M to 2.230M barrels
US total stocks fall from 17.705M to 17.335M barrels
(edit) After taking a good look, here's an answer. If these margin prices held through the end of the quarter, we'd have Q1 2014 numbers again, only this time without the big hit from any FVA for all the outstanding warrants that were in play in Q1, as well as the impact of the substantially reduced interest payments.
If you need a reminder, that quarter saw a gross operating profit of $38.5M and a FVA hit of $35.8M. Plus, Madera wasn't online.
Does that answer your question?
:D
see next post
(oops, edit)
For the past 4 weeks I have $0.10
For the past 6 weeks I have $0.04
That's assuming a one week lag between the time they buy it based on Nebraska prices, and sell it based on NorCal prices.
(the previous numbers (oops) of $0.15 & $0.09 were based on costs of $0.35/gal instead of $0.40 for transportation and overhead)
Ok, going through the 10-Q (first chance I've had to really study it) I think I found where a good part of where the difference was. Part of it was due to trading in futures
Pages 11-12: Loss of $1.217M due to derivatives.
At first glance the next thing I looked at seems to be where the meat is: The actual price they paid for corn in Q3 based on when they bought it, vs the CBOT average + basis for the quarter. Their actual cost is highlighted in yellow:
There's a $0.28 difference. One thing to take note of: I actually had $2.62 for the average CBOT price for the quarter. That's due to the fact that I keep track by the week, as opposed to the actual calendar date beginning and end of the quarter. So, the difference in corn between my calcs using the PEIX formula and their actual cost would be $0.26. The same applies with ethanol: Their average sales price per gallon was $2.32 whereas the average Cal terminal price, based on keeping weekly tabs, was $2.37
But when I run those adjusted numbers through the formula, I only come up with a $1.07M difference over the quarter. That doesn't explain it all. It still works out to an average production margin of $1.002 (vs the 1.025 calc that I used.
However, take a look at the actual gallons of production sold. It's 46.8M gallons, against an ideal 50M gallons. That's a difference of 3.2M gallons.
3.2M gallons * 1.019 = $3.26M
Now add it all up:
Derivative losses ($1.22M) plus margin adjustment ($1.07M) plus actual sales ($3.26M) = $5.55M
Divide that by 24M shares to get the fully diluted difference and there's $0.232/share (before taxes).
So a big part of it is actual gallons sold (which doesn't necessarily mean gallons produced, they have held back some inventory in hopes of better prices).
I'll keep digging . . .
I wish I actually knew what percentage of their total 3rd party dealings were buying and selling on the open market. Based on buying in Nebraska at the USDA plant prices, the actual difference with a one week staggering between buy and sell times for last week was $0.655
Even if it costs them $0.40/gal all said and done for transport & overhead (and I don't see it being that high, more like $0.35) they would be booking $0.25/gal
The margins for PEIX haven't been like this since early Spring. As in they have a license to print money :D
By my calculations, the margin for PEIX hit $1.472 yesterday. No matter how you look at it, with margins like that they pretty much have the keys to the printing press.
Thanks!
If I extend the average for 12 months, I get 14.2B gallons. We also know October production tapered off.
I should be able to use the EIA archive and come up with September and October. Then we'll know where we stand, compared to whatever final RFA mandate comes out ;)
90% of corn now harvested. See attached
USDA Crop Progress
Meanwhile, AgWeb says
Corn Overbought, Due For Correction
Ya think? :D
I was looking for a number the corresponds to the RFA mandate year. With the pending release of the 2014 number, that would be very good to know. I think that corresponds with the calendar year as opposed to the crop year, but I could be wrong.
Does anyone know where to find the figure for total corn ethanol produced for the year to date?
With less than 1M warrants left, any non-cash charges won't pose the kind of impact they had in Q2 either.
I think there might be some additional explanations for what happened. Check this out from the Q2 10-Q:
Purchase Commitments – At June 30, 2014, the Company had fixed-price purchase contracts with its suppliers to purchase $6,530,000 of ethanol and indexed-price contracts to purchase 20,776,000 gallons of ethanol. These contracts are scheduled to be satisfied throughout the remainder of 2014.
Depending on what price those fixed price contracts were based on, they could of lost a couple mil right there. CBOT ethanol was pretty high at the beginning of Q2 (I'd have to look it up but I think it was in the high $2's). Even by June 30 it was still in the $2.12 range. Come the end of Q3 is was down to the $1.60 range.
I think if we keep looking, we'll find where we were off. I did run an offset version of the production margin, where I used the corn price from the previous week. That knocked an average of $0.02 off the Q3 average price right there (the exact opposite effect is working in PEIX's favour so far for Q4).
I wonder how many people have really stopped to compare the current situation with Q2 (less the massive amount of warrants and large interest payments hit)
(edit) Until I figure out what the factors were that skewed the Q3 expectations, it would be rather meaningless for me to offer up a number, don't you think? Earnings certainly were considerably better than analyst predictions, but fell short of where myself and a couple other posters thought they would fall. I haven't had the time to go back through the last 2 10-Q's to attempt to identify the factors yet. Until I do that, I'm not going to prognosticate on Q4 EPS.
However, I have posted enough info on the quarter to date for someone to certainly extend Friday's margin out for the rest of the quarter and weigh in the performance to date. That would produce the number you seek (assuming everything stayed static form here out) and you could then compare that to the previous quarters. All the average costs and sale prices for each quarter are available in the 10-Q's (average sale price of ethanol, average CBOT corn & actual price paid, value of co-products as a percentage of the total delivered cost of corn).
Co-products = corn oil plus wet distillers grains sales. It's 30% taken off the total cost of corn that's incorporated in the formula I just posted.
No one publishes the wet distillers grains prices for the California market. Nor do they publish the corn oil price for California. The Mid-west values for corn oil, distillers grains and ethanol reflect a different dynamic than the one PEIX markets into.