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Wow. I don't know if anyone else noticed, but rack prices in several western states took a HUGE jump over the past 24 hours. The DTN numbers are always reported as of 6:45 am.
Colorado: up $0.242
Washingtion: up $0.3852
Oregon: up $0.088
These are all states where Kinergy markets ethanol.
Rack Prices.
Could this be indicative of developing supply issues? Montana is also up huge.
Another update on the harvest
U.S. farmers may harvest 3.969 billion bushels of soybeans and 14.556 billion bushels of corn this year, topping USDA forecasts for 3.927 billion bushels of soybeans and 14.475 billion of corn, according to a survey of 26 analysts and traders by Bloomberg News. The agency is set to update its projections on Nov. 10.
“Weather forecasts continue to suggest largely favorable conditions for harvest,” Commonwealth Bank of Australia said in an e-mailed note today. “Models do not have another substantial U.S. Midwest precipitation event until mid-November.”
AgWeb story on the harvest
In another story on DTN, the forecast for the Midwest is cold and dry over the next 10 days. Cold can't really hurt the corn crop any more, in fact it can actually help dry out the corn.
Once again the stories coming in are continuing to support the trend that the corn crop just keeps getting bigger.
AgWeb Corn HArvest Map
No the chart is not PEIX specific. The overall crush spread is the highest it's been since the week of September 12. As for PEIX, it's also at the highest since the week of September 12, right before the drop started.
Last I looked, ethanol was up another 5 cents today, and corn is more or less flat.
as for the corn harvest . . .
Soybean gathering was 83 percent complete as of Nov. 2, up from 70 percent in the prior week, the U.S. Department of Agriculture said yesterday. Corn collection advanced to 65 percent finished from 46 percent. Production of both crops will probably top the government’s last forecast, which was already estimated at all-time highs, a Bloomberg survey showed.
“Harvesting advanced more quickly than people expected, and farmers are selling more as storage space begins to get tight,” Greg Grow, the director of agribusiness for Archer Financial Services Inc. in Chicago, said in a telephone interview. “The crops are getting bigger, and the USDA will likely confirm rising supplies in its monthly report next week.”
source
let's see what the ethanol stocks are tomorrow . . .
(EDIT) Have you been watching the harvest news very closely? Combined with the harvest news, there's a couple very interesting developments on the corn front that I can see.
1. Neil stated in the CC that the State that most affects their corn price is Nebraska (makes sense, as they're the closest "corn state" to California, with Kansas a close second). He also confirmed what I've been saying - that overall they've been able to beat the CBOT + $1.28 basis used in their pricing model. He also stated that for a while in the fall that basis did push as high as $2.00. That would explain some of the discrepancies in plant model numbers, although I haven't actually run their Q3 average ethanol & corn numbers through the model yet to see how it compares with my predicted numbers based on daily market prices.
2. There's talk coming out of Iowa of 200 bushels/acre Ag news article. Now I doubt that's going to be the overall state value, but the chatter would suggest what the ag industry generally ruminates about big crops - and that is, big crops tend to get bigger.
3. The Ag Web self-reporting harvest map shows even higher harvest numbers at present for Nebraska (and Kansas).
Ag Web Harvest Map
And yes, what you said makes a lot of sense to me, it's just a question of how to come up with a predictor. I don't think it needs to be that difficult. First move I think would be to come up with how to predict a reasonable time span between buying (assumably from Kansas/Nebraska) and selling. Given the rack prices in most western states where Kinergy markets ethanol, I don't think it's unreasonable to assume they get the west coast terminal price in those states, or very close to it.
So a model might look something like
Selling price (West Coast) - Purchase cost one week earlier(Nebraska) less an estimate for transportation & overhead.
The first two are easy except for how long to allow for transport. I can set that up in excel in a jiffy with the data I've been logging. The bigger question is what to allow for transportation & overhead.
I believe Neil included corn oil in the net 6-7 cents plant operating revenue increase. At 200M gal over the course of a year, that's $12M increased revenue/year (using $0.06).
As for interest costs, they amounted to $8.37M over the past 9 months. $1.1M of that was for Q3. Going forward, that would equate to $3.3M over 9 months (a $5M drop) or $4.4M over a year (extending that would give a reduction of approx $7.5M/year).
The two of them together would amount to $17.5M before taxes. Even if you allocate 50% for taxes, that's a net $8.75M available to shareholders.
Then there's the reduction in net profit allocated to 3rd party interests due to plant buy-back. That would take a little more work to figure out, but I think it's safe to ballpark at $5M/year.
Add that to the $8.75M and it's up to $12.75M. Divide it by 25M shares outstanding once all the warrants are gone, and you get a net increase of $0.50/year or $0.125/quarter.
Ok, that's my attempt at back of the envelope kind of numbers . . .
I suppose you can do that if you want. Personally, I'm going to work it out in a little more detail. For starters I want to factor in the substantially reduced interest payments and increased plant ownership. Plus, over the next 12 months I expect additional corn oil revenue to contribute. As Neil stated in the CC, increased plant operating income should see a 6-7 cent increase due to improvements.
Of course, assuming a repeat in performance year over year is highly unpredictable. There's just so many variables, from rail congestion to (shudder) dramatically reduced corn planting in the spring, it's all a big casino.
BioFuel, I haven't had time to respond to your post about coming up with a way to factor in the effect of ethanol price moves on Kinergy before now. Been giving it some thought, will continue to look at it.
I suppose one way would be to look at the spread between mid-west plant (where they buy the ethanol) and the west coast price, then graph price moves against it. The weekly mid-west plant sales numbers are available through the USDA portal (actual numbers, not hypothetical plant numbers). I've been tracking those numbers since the beginning of Q4.
As for corn, this might of had an impact on Q3:
We did see corn basis get as high as almost $2 a gallon -- I'm sorry $2 a bushel delivered to the Western United States. But over the last couple of weeks, as the bean harvest is now almost complete and we're moving to corn, we're seeing a significant relaxation of those pressures and prices, to where we're seeing basis get back to more normal and expected relationships.
The other comment worth paying attention to:
Neil Koehler - CEO, President and Director
Sure. I mean if you look at that tariff rates for corn from Group 3, Nebraska, which is really what drives the pricing for us that depending on our plan is anywhere from $1 a bushel to $1.25.
What we're also seeing is that the basis in the Midwest as the crop comes in that we can buy corn at something under Chicago. So, normalized would be more in that $1 to $1.25 rather than the $1.25 to $1.50 that you mentioned.
We're still seeing some slight premiums on freight. That could be with us through the quarter. We would expect certainly by Q1 of 2015 that to get back to freight trading at parity, if not even some discounts.
We also now are seeing an offset on that Chicago/LA ethanol basis which, in the quarter was averaged about $0.20, which is more than normal level. Given the freight premiums we were seeing, that then didn't offset the -- being higher and we are seeing that now. Yesterday, we were at $0.27. So, we're also seeing some offset of any corn premiums we are paying by a higher ethanol basis today.
How much could corn drop in the coming days? Well . . . how about 17% for starters?
"Futures rallied 17 percent last month, the biggest gain since July 2012, as rain delayed the harvest in the U.S., expected by the USDA to be the largest on record."
Source
Thanks Value. Looks like the market over-reacted to an early drop in ethanol, but as of now, ethanol is flat while corn is down 5 cents. I suspect corn will continue to drop over the coming days, and margins will continue to grow. The crop progress report due out @ 4PM will be interesting.
Add in the coming increase in the revenue stream with the upgrades that are expected to increase operating revenue by 6-7 cents/year as of Q1 2015, and things look pretty positive for PEIX.
Maybe this will help. From the transcript of the earnings CC:
"Adjusted EBITDA is defined by the company as unaudited net income or loss attributed to Pacific Ethanol before interest, provision for income taxes, depreciation and amortization, fair value adjustments and warrant inducements, and non-cash gain or loss on extinguishment of debt."
... and in the 2nd paragraph of opening remarks from Neil):
"Over the last 12 months, our adjusted EBITDA was $96.9 million."
earnings transcript
You can also look at the earnings release for the individual quarters, PEIX has supplied the adjusted EBITDA in each of them.
Ethanol plants face shutdowns if poor rail service persists
Problems in South Dakota
Trains and E15
On the rail transport front, Becker said it was better than the previous quarter but has hit recent snags. All of the nation’s major freight railroads are now required to file weekly reports with the federal Surface Transportation Board. The reports were ordered after grain shippers complained that crude oil gets priority over other cargoes, a scenario denied by the railroads.
“We are still able to move product pretty well, but have seen some slowdowns of late,” Becker said.
The rest of the story
Gone for the morning. Hopefully some positive remarks come out of the conference call.
That isn't what they did in the past 2 quarters. It was very clear they used the closing price on the last day of the quarter.
It seems to me the explanation is in the inducements they talked about. It isn't so much FVA as inducements.
PEIX's formula takes that into account. Total return on distillers grains and corn oil is estimated at 30% of total delivered corn cost in the model. They slightly beat that again this quarter (30.8%).
Actually while the general corn crush may of been higher, the PEIX production margin was approx. 10% lower in Q3.
The good news on that front is that the ethanol price has been accretive since day 1 of the 4th quarter, when the PEIX margin reached it's low.
I won't be able to listen, but I hope someone asks straight up whether Kinergy is actually turning a profit or losing money the last two quarters. Maybe it's time for them to stop trying to be the biggest seller of ethanol in the west and instead focus on being the most profitable plant operator. Who cares how many gallons of ethanol you buy and re-sell if every one of them results in a loss?
Look at the Commodity Performance table right at the end of the release. I don't see how the plants aren't making money hand over fist with those prices.
Well, that's a kick in the pants
Interest expense was what I thought it would be.
Lost 1.1M profit to preferred dividends and non-controlling interest
Don't understand the FVA of $4.4M (but at least it's a non-cash expense).
Now look at the Average price they received for ethanol
$2.32 compared to a $2.37 California average (.05 less than terminal price)
Now corn cost: It beat the basis by $0.01
Co-product return was 30.8%
If I dump those into the PEIX crush formula I get
$2.32 - (5.15*(1-0.308)/2.74
= $2.32 - 1.30 = $1.02
My estimate on the production margin was with $0.005, however total production was only 46.8M
$1.02 - 0.48 = $0.54 x 46.8M gal = $25.27M
So either the plant operating costs are considerably greater than $0.48/gal or Kinergy lost a WHACK of money again.
One last reason why I expect good numbers from PEIX.
History shows that when PEIX has disappointing quarterly numbers to report, they wait until the last possible moment to report them. Typically just about as close to 45 days as they can get.
Just like last quarter, this time around they appear to be bursting at the seams to tell us the news. Once again they're releasing earnings within 30 days of the end of the quarter :D
I don't know, but the thing that determines profitability isn't crude, and it isn't the price of ethanol. It's the spread between ethanol and corn. Corn has been gaining steadily of late, but margins are still climbing steadily in the face of it.
Personally I think ethanol stocks are being heavily controlled by systematic shorting, even in the face of strong profits. I also think that corn is currently being driven up in advance of planned heavy shorting in the near future.
But hey, what do I know? It's not like the market is one big playground for criminals who only get a slap on the wrist after illegally shorting in order to skim off hundreds of millions in cash, is it?
FINRA fines Merrill Lynch $6 million
Good news for PEIX, bad news for GERS
Court rules against GreenShift in corn oil separation case
The U.S. District Court for the Southern District of Indiana has issued a sealed order which holds all asserted corn oil separation patents held by GS CleanTech Corp., a wholly owned subsidiary of GreenShift Corp., as invalid and not infringed on, according to a Oct. 24 news release from ICM Inc.
Slashnuts won't be very happy
So they beat their Q2 earnings of $0.82 quite handily. By better than 24% actually. Nice. Yet the anal-list forecast for PEIX is a mere $0.17 (way down from Q2 earnings of $0.77).
Tomorrow should be interesting :D
Although the breakdown provided by PEIX did not give any real insight, I believe Kinergy lost money in Q2. The overall numbers reported by PEIX were lower than the net profit before taxes I expected to see based on ethanol production alone, despite what was very clearly a quarter of stellar performance in terms of the ethanol production numbers.
If you look in detail into the Q2 filing, you'll see what I mean. On the ethanol production side, their selling price was actually higher than the Q3 average, and their corn purchase price was actually lower than CBOT plus basis.
The price of ethanol dropped considerably during April. The drop was far more severe than what we saw in September (I made an earlier post on this and provided the comparision). It's that drop that would of hurt Kinergy on the buy/sell side of their operations. Unfortunately it's difficult to estimate Kinergy's performance, as they basicallyprovide 3 different services: Market the ethanol production of PEIX plants as well as two other 3rd party plants for a straight fee; Procure ethanol on a straight fee contractual basis: and buy ethanol from Midwestern producers and resell it to the Western market.
The first two operations are no-risk. They're basically fee for service. It's the third part where the risk exists. As we don't know the volume of ethanol handled in the 2nd and 3rd operations, it's pretty much impossible to gauge their exposure in the third one. However, given their increased volume this year, I suspect the exposure is pretty high. I also don't expect any impact to be nearly as severe as Q2. If their performance in corn purchases as well as selling prices continued through Q3 as it did in Q1 & Q2, hopefully it should offset and potential loss on the Kinergy side when prices fell. They may also have seen the drop coming (it is seasonal) and hedged. We'll know soon enough.
I doubt they would shut Madera down while it's operating at a profit, or for that matter, unless they start operating at a loss for a sustained period of time. Given the production margins based on the PEIX formula, that hasn't happened. In fact, if yesterday's overall increase in the ethanol price shows up today in the California price, we could see the margin increase to well north of $0.80
If anything they might cycle the other 3 plants offline (one at a time) for maintenance. At present, however, I hope that isn't the case.
Will they try to play this up tomorrow?
The EIA five-year average shows inventories typically rising 1.9 million barrels this reporting week.
Refineries tend to enter into maintenance when summer driving season concludes, causing stocks to accumulate through late October, stabilize for a few weeks, and then draw down as demand returns in mid-November.
Which one matters more, oil or gasoline? Doesn't gasoline production drive ethanol consumption? Further down in the same article . . .
US gasoline stocks likely were 350,000 barrels lower last week, according to analysts surveyed. The EIA five-year average shows inventories often decrease over this reporting week, falling 438,000 barrels.
At 204.4 million barrels for the reporting week ended October 17, US gasoline stocks were 2.2% below the EIA five-year average, after a 1.3 million-barrel draw.
and finally, pertaining to California
Refineries entering maintenance last week included Chevron's 243,000 b/d Richmond, California, refinery, which has a 65,000 b/d fluid catalytic cracking unit as well as a cat feed hydrotreater. The turnaround is expected to last 45 days, a source said.
Source:
Corn Harvest Progress Improves as October Closes
Oct 27, 2014
Source
Weather was cooperative this past week as dry warm weather was experienced over much of the Corn Belt and farmers have made up ground on the harvest that has been delayed for most of the fall. Information from the field has been reported that the soybean harvest is finishing in areas of the Corn Belt. As more farmers put a close to the 2014 soybean harvest, expect for corn harvest to take more of the spotlight.
The USDA estimated the corn harvested at 46%, a 15% increase from last week, but 19% behind the five-year average. Analysts estimated corn harvest to be between 41% and 45% ahead of today’s report. Of the top five corn producing states, Iowa and Nebraska remain the furthest behind their five-year average at 29% and 22%, respectively.
Farmers are reporting corn yields have been “inconsistent” thus far. Higher precipitation levels experienced this spring and summer has led to lighter soils, which are more apt to draining, yielding above average. Conversely, heavier soils, that are less apt to draining, have been reporting average to below average yields in those areas that experienced above average rainfall.
Corn conditions were estimated by the USDA at 74% in “Good” or “Excellent” condition, unchanged from last week. 19% was considered “Fair,” unchanged from last week, while only 7% was considered “Poor” or “Very Poor.” Of the Corn Belt states, Illinois had the most corn rated “Excellent” at 35%, followed by Indiana at 26%.
California ethanol now above $2.00, PFL reported the bid/ask @ 2.00/2.03
PFL Daily Report
I would expect a further increase tomorrow, as today's California pricing did not fully reflect the CBOT price gain.
For those who are interested, the PEIX gross production margin for today was $0.761/gal (or 1.36/bu). After allowing for plant operational costs, that should net out somewhere around $0.28/gal.
Nice, ethanol settled @ $1.76 (up $0.074)
Clearly there's a lot of speculation on the USDA harvest progress report with the price of corn.
One thing for sure, in as much as when ethanol prices are steadily falling Kinergy gets caught in the crossfire by having to buy and then sell into a falling price, when ethanol prices are rising Kinergy rides the wave :D
Ethanol hit it's lowest price on the West Coast on October 1st. That was day one of Q4. It's been steadily climbing ever since.
I don't know but if the current prices hold through the close for corn & ethanol and is reflected immediately in the California price, the PEIX production margin will continue to inch towards $0.80 ($0.787). That's a lot better than the low of $0.502 it hit on October 1st. It's the price of corn vs ethanol that ultimately determines profitability.
Spot ethanol prices traded higher along the West Coast
Spot ethanol prices traded higher along the West Coast, with gains driven by short covering and a lack of adequate railcar supply.
Elsewhere in the country however, the ethanol market continued to be pressured by bearish sentiment that has plagued commodities. "I think railcar manifest are short as well," said a trader of the West Coast market.
Prompt ethanol barges in Northern California traded at $2.00 per gallon for a 4.0 cents gain, while spot Arizona ethanol was bid at $2.00 per gallon, up 4.0 cents on the day.
Source
Is that the same Goldman Sachs that couldn't see their own demise and had to be bailed out by the feds?
I pertinent question is how much oil production as well as exploration shuts down at $75 a barrel oil. It affects oil sands production, as well as shale oil.
Wednesday will be a very interesting day. Inventory update followed by earnings :D
If Valero keeps this up, ethanol will continue to rise for sure
Oct 13 Valero Plant catches on fire
That was a week after another one of their plants caught fire
Pacific Ethanol: Boom to bust — and back
6 page story from the Sacramento Business Journal
The average for this week's margin for PEIX looks like it'll come in north of $0.70 (not counting today, it averages out at $0.73 for the week). While it's not at the levels we saw this Spring & Summer, it should still result in a profit.
Who knows what the future holds? If one thing's for certain, ethanol can turn on a dime.
I would tend to agree with your appraisal of the situation.
When I use the PEIX model it's specified as a 30% return and is based on CBOT + basis. The resulting input into the production margin would therefore be on the conservative end of the scale.