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The price of corn is always a question. In PEIX's own formula for estimating corn costs they use CBOT + $1.28 for costing corn. In both the last two quarters they came in under that quite handily. I think that's due to the arrangement they have with the grain distributor that leases their elevators.
When I use the PEIX formula on Q3 I get a gross margin of $1.025. If I use an operation cost estimate of $0.48/gal that leaves a gross of $0.545 before taxes x 50M gallons = $27.25M. Chop off another 2.25M for interest costs and other expenses leaves $25M.
They allocated 30% for taxes last quarter. Even allocating 35% that leaves $16.25M
Shares outstanding are 23.9M so 16.25/23.9 = $0.68/share. The weighted number would be higher.
I know that's back of the envelope math, but if Kinergy broke even and their aren't any other major surprises, we'll be fine. If Kinergy turned even so much as a small profit, it'll be better than that.
BTW Kinergy buys from midwest plants. The differential between average sale prices at mid-west plants and Cal terminal prices this week are running in the $0.43 range (using the USDA daily reported ethanol prices averaged across 5 states). Kinergy should be turning a profit on that end of their business right now.
Kinergy doesn't deal in distillers grains, only ethanol. PEIX markets their own distiller's grains through Pacific Ag Products.
The formula I use for the PEIX margins, which is the one provided by PEIX, treats the returns on wet distillers grains and corn oil as a percentage of the cost of corn. Remember that the California market is tied to California corn prices.
In both the last 2 quarters, PEIX beat their 30% return quite handily.
Brazil Ethanol Production, Exports Down
NEW YORK (DTN) -- The Union of Sugarcane Industry Association, Brazil's largest trade group for sugarcane and ethanol producers, said in its biweekly update issued Thursday, Oct. 23, that sugarcane processing in the country's South-central region plummeted during the first half of this month due to bad weather and plant closures, with ethanol supply also similarly down.
the rest of the story . . .
Keep in mind that ethanol also dropped at the beginning of Q2. In fact the drop was considerably more severe than the drop this Fall.
Ethanol was $2.19 (CBOT price) on the 2nd of September.
Ethanol bottomed out at $1.58 on the 30th of September.
That's a drop of $0.61
Ethanol was $3.52 on April 1
Ethanol was $2.00 on May 6th.
That's a drop of $1.52
I could be wrong, but I suspect Kinergy was hit a lot harder in Q2 than it was in Q3 by falling ethanol prices.
PEIX lost more ground than Midwest producers when the margins dropped. Now it's starting to recover a chunk of that back.
From the daily PFL report: "Arizona traded for railcars with this week shipment at $2.04."
It's not just California.
I wonder if we'll see earnings next week. With PEIX margins recovering 44% from the low on October 1st and ethanol stocks drawing down, the timing almost couldn't be better. About all we need now is a correction in corn prices.
I re-tabulated the early harvest numbers coming in on AgWeb again yesterday . . . here's their map
Corn Harvest Map
and here's how the early numbers come out when extended. These are still very early numbers (and they're self-reported) but these are monster numbers showing up so far.
West Coast stocks are also down
This article hints at what might be partly behind it: ongoing demand combined with late harvesting.
farmprogress.com/story-good-deals-entice-shell-corn-early-15-118294Good Deals Entice Some to Shell Corn Early[/tag]
Corn in North Dakota isn't exactly skyrocketing . . .
Corn Prices Tumble in North Dakota
I'm still tracking data but I'm not as active on the board due to other demands on my time. I've re-tuned what I'm tracking for a couple reasons. Here's what I'm tracking this quarter (the red entry for friday's terminal price is an estimation as PFL did not post their report for Oct 17th)
It's certainly not all a foregone conclusion of a doom and gloom quarter. PEIX margins are back in the $0.70's, and while the spread between CBOT and Cal price isn't as high as it was, the spread between Midwest Producers and the Cal price for ethanol would suggest there's lots of room for Kinergy to make some coin.
Does anyone have Friday's LA terminal price for ethanol? PFL didn't publish their daily report for Friday. Thanks in advance!
Everyone's been quiet about the upcoming earnings. I know that YaZoo has estimates posted, but they seem rather low.
I have the Q3 production margin at $1.025
Subtract $0.48 for operational costs leaves $0.545
50M gallons of production x $0.545 = $27.25M
Deduct $2M for any remaining financing costs = $25.25M
Multiply by 0.65 for taxes = $16.41M
Divide by 23.91M outstanding shares and round down = $0.68/share
Given Q2 saw a higher margin but with lower total production, it's looking to be right in the same ballpark.
Kinergy might not of performed all that well, but then that appeared to hold true for last quarter too. They would of lost money in September, just as they would of lost money in April (in fact the April drop was a lot more precipitious).
BTW PEIX made a $7.196M provision for taxes last quarter on $24.162M (just under 30%) so I've allowed 5% more above.
More importantly, if these prices hold through the close, the PEIX production margin is set to close well on the north side of $0.70 (I currently have it @ $0.725 assuming the California ethanol price has followed suit). . .
and corn could see a lot of downward pressure
updated early corn harvest numbers
those numbers extended
Sorry, the low was on the 1st, not on the 6th.
What's even better is the 36% rebound in PEIX margins since it's low on the 6th, combined with some healthy margins again for Kinergy to operate. A few railroad problems now combined with a good harvest progress report and we could see things continue to heat up again, all at a perfect time for a good earnings release ;)
(of course, as everyone knows, we could also get a double whammy in the other direction, but right now I think the tilt is up)
You just never know when things could turn on a dime . . .
trains trains trains . . .
here's a chart
The price of gasoline is probably more relevant than oil, but when it comes to profiting from producing ethanol, everything plays 2nd fiddle to the price of corn vs ethanol.
The 2014 average U.S. corn yield is now estimated at the record level of 174.2 bushels per acre . . . USDA latest numbers
Now I know these are early numbers, but if I take the numbers posted on that map so far, put them in a table and extend them, here's what I get:
That or the realization that a couple days of showers didn't decimate the corn crop.
Look at these harvest averages coming in :o
Corn Harvest Map
Maybe by then the lemmings can get it down to $1
(edit) This news already broke a couple days ago. It's why Dec corn increased 12 cents yesterday and an additional 11 cents today.
It'll likely be followed up by a good weather report sending Dec corn back down to the $3.30's from the current $3.57 I suspect any slide back down will first show up on the MGEX ;)
Even Bloomberg had a story out on it yesterday.
Meanwhile the selling prices at midwest producers have remained pretty stagnant over the past several days. Almost like no one has sold any product and are holding out for better prices. Ya, this yo-you should be fun over the next few weeks.
Anyone know if any ethanol producer has stepped up to the plate say when they'll be releasing their Q3 numbers?
I agree totally. The market is rarely rational.
No doubt any longs who sold Oct calls are happy though (and probably hoping the price stays deflated for the next 3 days). Thankfully I'm not holding and Oct calls.
Two things to notice about that graph:
1. The CARD model assumes a net cost of $0.25 for debt financing to pay off the capital cost of the plant. PEIX is not in that position. At $0.25 the CARD model is breaking even, whereas PEIX (if it were the exact same plant) is booking profit. It's now net debt free.
2. The bottom line is the red ink on the graph. Other than a few spikes, times were actually worse from early 2012 through to early 2013.
The production margin calculation has PEIX averaging around $0.57 at present. My understanding from the PEIX Operating Metric model is that the balance of costs run PEIX around $0.47/gal. Even at this low net margin, that leaves $0.10 x 50M gal/quarter net before taxes and debt servicing on the remaining $17M outstanding (less investment return on the $40M profit now in the bank).
Just as PEIX didn't pocket kajillions of dollars and turn into a $40 stock when the CARD model said it should in Q2, it's not exactly going down the tubes as the CARD model says it should for Q4. But then that's the problem with using a model for the entire industry, when the model in particular doesn't even stand up against the USDA ongoing production numbers for Iowa plants. The model is a generalization. I highly detailed generalization perhaps, but a generalization nonetheless.
Here you go, Q3
direct link
Historical Price Comparison Chart
It's tough to find a complete set of historical data going back any length of time, but the data set from the Agricultural Marketing Resource Center allowed me to construct the following chart. The chart covers the period from Jan 2005 to August 2014
One more piece of information . . . note that the ethanol and corn prices are Iowa historical prices. They are typically lower than CBOT prices.
This link will take you to a larger version if you are unable to enlarge the embedded version above
To follow up on my previous post regarding prices, the California price for ethanol jumped today, while corn dropped substantially. These are the PEIX production margin values for the past 5 days:
0.509
0.533
0.576
0.562
0.670
As I mentioned earlier, I also track the difference between Midwest plant spot ethanol prices and the CA price as an indicator of how healthy the buy/sell margins are for Kinergy. That spread increased substantially today as well. It has now climbed from a low of $0.15 on October 1st to $0.37 today. Combined with the reaction in rack prices, it would seem to suggest that west coast margins are on the rebound.
I normally don't post when I buy or sell, and it may well prove to be a mistaken move to try to catch a falling knife, but I went all in with all the cash I had on hand today when the drop hit towards the end of the day.
New crop corn weekly average price paid to farmers (Glenn, CA)
$7.88 cwt/$4.41/bu
USDA report
Compared to the weekly average CBOT price @ $3.41 + basis ($4.69/bu) I suspect PEIX is once again beating the input used in the hypothetical plant model.
Some interesting observations on rack prices.
I tabulate the daily spot rack prices in the States that Kinergy resells ethanol to, as well as the National average rack price. In addition I keep track of the average plant sale prices from those states Kinergy would likely buy ethanol from. Yes I know PEIX doesn't receive rack prices, but the information can still provide insight to the market.
A couple interesting developments have appeared over the past couple days. First, after hitting a low of $1.9635 on Monday, the National average price has recovered to $2.0306 as of today.
More interestingly, after bottoming out at $1.75 on monday and holding that price through Wednesday, the California rack price has gained $0.10 over the past 2 days, and is now $1.85. Arizona also followed suit; after reaching a low of $1.75 as well, it has now recovered to $1.90. The remainder of rack prices for the Western States Kinergy resells ethanol to have all somewhat stabilized or gained a couple cents after also reaching lows at the beginning of the week.
Cal Terminal prices (as reported by PFL) have also recovered approx $0.12 (as of yesterday) since bottoming out the middle of last week (yes, they started climbing after last week's EIA numbers, let alone this week's). Today's numbers won't be available for another couple hours.
“Big crops get bigger.”
There was some speculation during the past week that the corn harvest would be smaller than expected due to weather concerns. Today's USDA report kiboshed that fear. The essential message in this article on today's report was echoed by a headline in another article which stated "Big Crops Get Bigger"
Corn, Soybean Prices Fall
PEIX provided a hypothetical production margin calculation in their June presentation. Once you calculate that number, it's not unreasonable to allow an additional $0.48 ($0.45 - $0.50 range) for additional operational costs (am basing that off the "operational metrics" spreadsheet for PEIX that was posted on this board last December. I have not updated those numbers, however I don't believe any of the inputs have changed significantly enough to be concerned about in an estimate model).
FYI, the average production margin number for last week was $0.550 (keep in mind we're not even 2 weeks into Q2).
The average number for Q3 was $1.025
I believe the Neeley hypothetical plant numbers are pre-tax (as are the PEIX numbers).
There are several things different about the Neely model. First, they pay different corn prices and receive different prices for ethanol than PEIX does. Currently, on average Iowa plants are receiving less than the CBOT price ($1.48 vs 1.55 as of yesterday). Second, they are basing distillers grains prices on dry distillers grains, meaning they incur significant additional natural gas costs and receive significantly higher prices for the product.
Something that shouldn't be lost, is the fact that the Neely hypothetical model factors in debt servicing for the initial capital cost of the plants. PEIX is now net debt free (although there still remains an amount they are paying interest on, but nothing near the remaining plant cost factored into the Neely model).
I don't remember whether the Neely model includes corn oil extraction. One thing it doesn't include though, is the surplus sugar PEIX is running at the Boardman and Magic Valley plants.
Just to clarify, when I say the margins appear to be starting to come back into balance, I'm referring to margins more as they relate to PEIX on the basis of the daily numbers I track, and the lows they reached a week ago as opposed to now (as per post 27140)
I think you're 100% on the money. Those who started the short play managed to incite a stampede for the exits. We're only a week into Q4 and the fringe players have written of the ethanol industry in general and PEIX in particular, selling it down and aiding the shorts in the process. Meanwhile, given the numbers it's reasonable to expect the Q3 earnings to be within a stone's throw of Q2. While the price of ethanol was front running the drop in corn the past few weeks, the margins are showing signs of coming back into balance.
For those who try to gain a sense of how Kinergy is faring, the differential between CBOT and California ethanol has bounced back from a low of $0.12 last Wednesday to $0.19 today. Even more encouraging, the differential between the average selling price of ethanol at Midwest plants and California has increased from a low of $0.15 last Wednesday to $0.31 today. Perhaps a little early to write it in as a turnaround, but at a minimum it's encouraging. The PEIX production margin has also recovered from a low of $0.502 last Wednesday to $0.576 today.
I come up with the average Midwest Ethanol plant price by taking the average selling price for Iowa, Kansas, Minnesota, South Dakota and Nebraska, as reported daily in the USDA Daily Ethanol Report
PADD 5 Historical Inventory Levels
I grabbed this data from the EIA xls file going as far back as they've been collecting it and graphed it. A fall inventory spike is the norm. As the graph shows in 3 of the 4 past years, it was followed by a decline in stocks.
I'll try to plot a couple other data sets as well, but I'm really pressed for time today so I don't know how much I'll be able to get done
I wonder if PEIX has enough cash on hand now to take advantage of any weak producers. Opportunity could knock in the months ahead.