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Apparently there's a lot of plants on the verge of bankruptcy in Brazil...
They might be getting that much from any sales they make in Colorado. Rack price there is still sky high ($2.40). Wonder how much it costs to ship ethanol by rail. I've been watching the plant prices for the mid-west states.
I wonder what gives him this idea?
PEIX is effectively selling its ethanol right now for CBOT's $1.583/gal plus a $0.50/gal basis
I wish!
Nice to see a little bit of a rebound in the Cal price as well as the PEIX production margin today. Hopefully it's establishing a base rather than a pause in the storm.
Time frame. For some, temporary might mean a matter of hours. In the ethanol business, it's a matter of seasons.
Look back on the seasonal history of gasoline consumption. Higher demand in the summer, lower demand in the winter.
My point about maintenance is that big oil is playing this for all it's worth. The one tool the ethanol industry has to hit back with and level the playing field is production.
I really think the best thing the ethanol producers could do right now is shut down for plant maintenance en mass. The stocks on hand are not excessive for this time of the year when compared to other years. Yes they're lower some years, like last year when the impact of the cost of corn meant a lot of plants weren't even operating. Other years inventories were as high or higher. This year, however, it seems the oil industry is attempting to squeeze them, playing a wait and see game and letting the corn surplus drag the price down. They should respond as a unified front. I doubt they will though, because as an industry they're not mature enough to respond to supply and demand. Nor are they the oil industry, who as an end supplier to consumers, will continue to rape and pillage on both sides of the equation. They'll as readily screw the ethanol producers as they will the consumer.
Might as well shut down production at that price until things turn around.
More ethanol political BS - campaigning instead of releasing long overdue regs
U-S Senate Candidate Braley Visits Plymouth Ethanol
I don't even live in the US let alone Iowa, but if I did, I'd be sending these jackasses an email to let them know if they continue to hold up the release of the requirements in order to use it as an election carrot, they won't get my vote.
The California situation should get interesting. West Coast stocks have been holding fairly steady while the margin has been more or less decimated. As of yesterday, the difference between CBOT and LA was $0.12 which should discourage Eastern plants from shipping their product west.
I'm also tracking the difference between the West Coast price and plant prices reported by the USDA for this quarter, as well as rack prices for the Western States where Kinergy sells ethanol. Given all the distress it caused when I reported some of those numbers before, I'm not going to post them. Besides, I don't want to tip the shorts off ;) However, they're not that difficult to keep tabs on if someone wants to do that for themselves.
Production also continued it's downtrend
4-Week Avg U.S. Oxygenate Plant Production of Fuel Ethanol (Thousand Barrels per Day)
Jul 25, 2014 946
Aug 01, 2014 940
Aug 08, 2014 937
Aug 15, 2014 931
Aug 22, 2014 921
Aug 29, 2014 926
Sep 05, 2014 924
Sep 12, 2014 923
Sep 19, 2014 917
Sep 26, 2014 907
Compared to other recent times, it's really not an excessive level
Aug 3 - Sept 28 2012
18651
18447
18493
18494
18732
18953
19325
19259
18808
It is about 2.8M barrels higher than this time last year, but then look at the corn supply and price of ethanol situation this time last year.
I think the fact that it held steady is really encouraging, given the news at the beginning of the week that exports are heating up. Any exports this week that prompted that news story won't show up until next week's numbers.
US ethanol stocks more or less held steady the past 3 weeks
Sep 12, 2014 18805
Sep 19, 2014 18592
Sep 26, 2014 18828
Same with West Coast stocks
Sep 12, 2014 2318
Sep 19, 2014 2229
Sep 26, 2014 2258
Ok, now that the $13.96 fix is in, the one thing I want to know is, how many warrants remain? Do we get a decent non-cash credit this time? Mind you I suspect volatility is up on any remaining warrants as well, so that might negate a portion of any credit.
hoping that allows us to make out like bandits ;)
Well, based on a couple other stocks I've been involved with, I'd rather not see anything that could be read as "pumping" by management. Nothing will drop a share price faster than a class action claiming management misled people by misrepresenting the stock. I could just see it now. Someone who bought at $23 finding an ambulance chaser firm willing to file a class action that they were misled by management giving the impression that the GAAP-based EPS was meaningless.
Frivolous or not, the trend is for the ambulance chasers to throw lawsuits at anything that could even remotely be interpreted as misleading, hoping to pocket a couple million in the process to make it all go away in a year or two. Few shareholders take responsibility for conducting due diligence. They want management to pump the stock when the price drops, but on the other hand if they get hurt by the pumping, they expect to be compensated. Law firms are only too willing to support their delusions, not because they're in it to protect shareholders, but because it can lead to a paycheck. So what's a firm to do? Stick their neck out, only to get sued? Or let the market work it out over time?
Of course it isn't that simple, with the blatant (more often than not illegal) manipulation that goes on. The likes of outfits like The Street are only too blatant in their manipulation, however, the feds refuse to step in. Where does that leave management? Do they step in and yell from the rooftops that the value of the company is worth more, only to be steamrolled by the blatant manipulation and subsequently sued by the very shareholders that demanded they do something?
I'm personally kind of hoping they run it down into the ground into the close. Not that I missed the earlier low buying opportunity or anything :D
Besides, every buck they drop it today is another $1M or so credit that will show up on the Q3 books, assuming those 1.4M warrants are still around ;)
I doubt it, PEIX isn't in the bio-diesel business. I suppose it could affect the price of corn oil, but that by itself isn't going to affect the profitability of PEIX to this extent.
I suspect this is just pure short-side manipulation taking advantage of weak buying to drive it down. Short, drive it down, cover, let it float back up. Rinse, repeat every day until the market wakes up. I wonder if it'll take them until earnings release to arise from their slumber?
Just got back to see the current ethanol situation. PEIX, REX & GPRE all down, with PEIX taking the brunt of it. At the same time, corn is falling like a stone, while ethanol appears to be holding it's ground. The Q3 production margin for PEIX is $1.025 and according to yesterday's press, ethanol exports are heating up. On top of that, unless the price improves dramatically before the close, any remaining warrants will produce a non-cash credit.
As for the corn story . . .
I'm showing REX slightly down on the day. That said, there are no options for REX. Do you think that might help in terms of less price manipulation?
I think PEIX is a little bit more of a magnet, both in terms of price manipulations related to options, and the fact that it's only a year ago that it was struggling to stay alive. While there's now two excellent back-to-back quarters on the books, that's not a lot of distance in terms of time away from a number of bad years for PEIX. Investors and even more so, traders are bound to be more reactive, especially those who know little about the industry or the overall PEIX story and are only playing the charts. Hey, it only took two weeks for the cheerleaders to go from calls for $30 and $40 share prices to "yeah but what have you done for me lately?" Face it, if you're in PEIX, you're in a highly reactive stock that's going to be subject to blatant price manipulation at times in an industry which is anything but stable in terms of long term margins. We've seen two strong examples of that last point so far this year.
The Q3 numbers will tell the story. I doubt it has anything to do with corn hedging though, given PEIX's business model.
Lots of option activity so far today
Lots of money being placed on October put bets (although some of them may be closing out previous positions).
Meanwhile, there's been steady buying of Nov $16 calls. Open interest going into today was only 13 contracts, so far today 1570 contracts sold. Someone appears to be betting on good Q3 numbers and a turnaround in the current margin slide.
Funny thing, this ethanol business. It can turn on a dime. Or a train. Or perhaps, several boats headed to Brazil?
Is the bottom in?
Chicago Area Spot Ethanol Prices Boosted Early by Exports
Spot ethanol prices traded higher in Chicago area on technical support, renewed export demand and gains for gasoline and corn markets. "Friday (9/26) was the bottom...we rally from here [out]," said a trade source. "Exports should be massive this week, with a bunch of product loading and finally the staged product should come out." Prompt Argo ethanol traded at $1.60 and $1.59 gallon, up 1.5cts. Chicago ethanol under Rule 11 for ethanol for this week transit to the East Coast and Gulf Coast traded at $1.57 gallon.
Keep in mind those exports would not show on this Wednesday's weekly EIA report.
I think it's a little early to write off Q4 2014, since it hasn't even started yet. Ethanol remains considerably cheaper than gasoline, and corn is going to remain cheap into the immediate foreseeable future. Current prices also have to be making US ethanol attractive in other markets (like Brazil, for example). A couple weeks of ethanol prices front running the drop in corn doesn't automatically translate into thin margins for the entire quarter. We will likely not see a return to the $1.20 + margins without a development that squeezes the ethanol supply again, but I'm not so sure I'd panic over the drop we experienced. I think the entire industry knew those margins were not here to stay.
Already there are stories surfacing about producers taking plants offline for needed maintenance after running flat out. I suspect those maintenance shutdowns were all tentatively scheduled before the drop happened - after all, the Fall decline in gasoline consumption is pretty much a given.
As for PEIX, well, I think the place to look for some initial guidance is in the 2013 10-K, and what has changed since.
One change to pay attention to is the cost of debt servicing. In 2013, PEIX spent $15.67M on interest expense. That worked out to $0.098/gallon of production (based on 160M gal/year). That cost for Q2 2014 was $2.89M. Based on 45.5M gallons of production in Q2, that works out to $0.063/gallon. Now remember, PEIX paid down a substantial amount of debt going forward in Q2 and the beginning of Q3. I suspect that interest number for Q3 will be somewhere under half of what it was for Q2, with production improved with Madera running at full capacity for all of Q3. So it probably looks something like $1.4M/50M (or $0.028/gallon).
That's a $0.07/gallon improvement in operating costs (and my allowance is probably high). $0.07/gallon x 50Mgal/quarter works out to $3.5M/quarter that isn't flying out the door every quarter in pure profit.
Then factor in the added plant capacity. The production margin drop from Q2 to Q3 (using the hypothetical case for PEIX) is approx 20 cents, or 14.4% However, the production capacity also increased by another 4.5M gallons, or 10.1% which goes a long way towards offsetting that reduction. Remember too, that PEIX came in with higher selling prices and lower corn costs for both Q1 and Q2. In fact their corn costs for Q2 were actually 15 cents better than the CBOT plus basis allowance predicted. Comparable performance this quarter would mean coming in very close to last quarter, everything factored in. With of course, room for surprises. Like better returns by Kinergy for example. The first month and a half of Q2 had to be pretty rough on trying to buy and re-sell ethanol . . . yes the price drop probably didn't help again the past 2 weeks, but that was nothing like that Q2 drop from those end of Q1/beginning of Q2 highs.
But that doesn't predict Q4 performance. However, if I take the Q4 2013 numbers, with an operating income of $17.2M and a net available to shareholders of $8.3M and add back in that $3M that isn't flying out the door in interest payments (and that number will probably be close to zero by the end of the year), plus factor in the increased production, all that's left to do to get a ballpark of what the margin would need to be is to do the math ...
The numbers needed to calculate the production margin for Q4 2013 are included in the 10-K PR release. It works out to approx $0.90 Now that may well seem like a pipe dream at first glance, but take a look at what happened to the margins last Fall. They really weren't much better than they are right now. Then things changed. Again. And changed in January. And again in the 2nd half of March ...
Or to return to my earlier point, hey, Q4 hasn't even started yet! Let alone Q1 2015.
Keep in mind that the production margin is not net profit. It only factors in the cost of corn.
Look into the current price difference of Brazilian gasoline vs US.
Ethanol producers are struggling in Brazil because of the "low" gasoline price, which as of Q2 2014 (according to Bloomberg) was an average of $5.35/gallon. Brazil price
The Brazil "subsidy" to ethanol exporters that started the frackass around this non-issue is only a fraction of a penny per gallon, and at their current costs, there's just no way Brazil can compete cost-wise with US ethanol production. Imports of Brazilian ethanol is going to remain a non-issue for the foreseeable future. In fact, the situation is currently reversed, with the US exporting ethanol to Brazil.
Ok, this is interesting, and could possibly be a partial explanation of what's going on.
The first chart plots 3 values from June 2010 to present:
* Net Production of Oxygenates and Renewable Fuels
* Oxygenate Plant Production of Fuel Ethanol (as a portion of that)
* Renewable Fuel Oxygenates Excluding Fuel Ethanol (as a portion of that)
All data used to plot the following charts was taken from the "Data 2" page of Table 3: Refiner and Blender Net Production (XLS file), which was part the EIA Weekly Petroleum Status Report for the week ending Sept 19th. It has not been altered in any way.
Note the boxed area on the right. (Link to larger version)
The second chart takes a closer look, by charting those same values from Jan 2014 to present. Note the changes in values between Ethanol and non-ethanol renewable oxygenates in the two boxes. In the first box, total production decreased, and non-ethanol production decreased along with it. In the second box,however, even though total production climbed again and then dipped, non-ethanol climbed and remained there. From the week ending Aug 29, total production of non-ethanol increased from aprox. 55 to 105 thousand barrels, while ethanol ultimately decreased from 930 to 890 thousand.
Link to larger version
It would be interesting to overlay the CBOT ethanol near futures price history on that as well. Is this just an anomaly, or is non-ethanol renewable oxygenate production something Big Oil has some control over (and uses to manipulate ethanol prices at rather auspicious times)?
I might get around to digging up and overlaying the price history of ethanol on that 4 year record as well . . . only there's a few other interesting bits of information buried away in the EIA data series that have also have my curiosity . . .
Week 39 is in the books. Some production margins for Q3:
Iowa $1.087 (based on USDA reporting of actual plant costs/sales)
Illinois $1.114 (based on USDA reporting of actual plant costs/sales)
PEIX: $1.025 (based on PEIX hypothetical margin calculation)
FYI all the above margins factor in the cost of corn, as well as ethanol, corn oil and distiller's grains sales. They do not factor in operational costs.
An hour down Hwy 99 from Madera, farmers at Tulare are selling new crop corn for $7.50/cwt ($4.20/bushel).
California Weekly Grain Report
CBOT + basis for near futures works out to $4.54.
Meanwhile, the spot price for corn dropped to $2.86 on the MGEX today. Add the basis to that and you get $4.14
Somehow I doubt PEIX is paying CBOT near futures price at present.
PFL got the numbers wrong again today.
They report CBOT Oct ethanol at $1.617 and yesterday as $1.635
Those are actually Monday and Tuesday's numbers.
They did the same thing with CBOT corn.
Meanwhile, the daily cash price on the MGEX trading floor for corn is now sub-$3 for the first time since I've been tracking it @ $2.9850
http://www.ams.usda.gov/mnreports/ms_gr110.txt
Meanwhile, back at the farm . . .
Crop Prices Trade Near Lowest Since 2010 on U.S. Harvest Outlook
Some historical West Coast inventory levels for this time of year to put this all in perspective:
PADD 5 (thousands of barrels)
Sep 19, 2014: 2229
Sep 20, 2013: 2308
Sep 21, 2012: 2467
Source
If you have Excel, the XLS file for Table 5A was available right at 10:30 on the dot. You have to scroll for the ethanol stocks all the way to the far right
Considering how over-manipulated this run-down was, who knows? If you take a look at historical inventories, this range is well below inventory levels reached in 2013, 2012, 2011 . . .
PADD 5 West Coast (thousands of barrels)
Sep 12, 2014: 2318
Sep 19, 2014: 2229
US totals
Sep 12, 2014: 18805
Sep 19, 2014: 18592
They bet wrong eom
If you're willing to fork out the doe, there's always someone who's willing to fork out the data.
CME subscriptions
Not sure how useful that will be, I've never subscribed. I do see though that for $20/month they'll even sell you the same 10 minute delayed quotes that you can already get for free. After that, everything's an add-on (or even worse, another subscription you need to purchase from someone else, like in the case of West Coast terminal live spot ethanol prices)
I think the bigger question will be whether the weekly ethanol stocks hold steady or even contract slightly this week, or whether they continued to expand.
Even more curious though is how PEIX has found the zone close to the Q2 closing price and with 5 trading days to go until the close of Q3, is now hanging right around that range.
My personal thoughts are that the current drop is in part in anticipation of lower corn prices, fueled by the normal Fall drop-off in gasoline consumption (and therefore, drop in ethanol demand).
I suspect things will balance out soon enough. We might not see a return to the continued high profits, however I think we will see a healthy industry. Even at these margins, with all the changes PEIX underwent over the past 9 months, they should still turn a profit. All one has to do to confirm that is to look at last year's quarterly statements, adjust for the added Madera production and account for the elimination of debt servicing (and that's without the added profits from running surplus sugar at two of the plants).
I also suspect that some plant maintenance will start to be scheduled now that the record margins have subsided, by producers that have been running flat out over the past 4-5 quarters. That too should have an effect on the current situation over time.
The weekly numbers (week 38)
The weekly margin for PEIX is way down (no surpise there) however the overall number for the quarter will still close out north of $1.00. While it's not as high as Q1 or Q2, nonetheless it's still very healthy. Keep in mind as well that production capacity increased by approx another 5M gallons for the quarter (from 45 to 50M) now that Madera is fully operation after the start-up half-way through Q2. That extra capacity means the overall gross profit numbers for Q3 plant operations could very well be be quite close to Q2.
It's interesting to see the comparison in the Platts model compared to the USDA weekly ethanol numbers for Iowa and Illinois (others are available as well). The USDA doesn't include operational costs like Platts does, but their numbers are based on actual plant sales and purchases of ethanol, DDGS, corn oil and corn. (the PEIX number is of course, hypothetical, based on the formula they provide).
Click on the chart below to see a larger version. Here is a direct link for anyone having difficulty with the image below
"Regulators are imposing new rules that industry executives fear could slow the entire rail system, cut capacity, and cause congestion"
Dangers Aside, Railways Reshape Crude Market
I don't know, I didn't really know anything about shipping ethanol by tanker until I read up on it today. It would seem ethanol is shipped in a type 2 chemical tanker, due to the requirements of handling ethanol. Their sizes are considerably smaller than oil tankers. The largest appear to run in the 35,000 DWT range, which would hold approx 260,000 barrels.
If they were "loading up" to fill a tanker, it would seem to me that current stocks in PADD 1 could easily fill one of these without any serious drop in stocks. I could be completely off base on this as I only started looking into it today, but a first glance, that's what I came up with.
I think what's interesting is the fluctuation month over month of ethanol stocks, looking back over a 4 year period
My take is that big money is grinding this down to cash in on a heavy short position. They saw an opportunity to make money, shorted the industry and then hyped the shit out of the increased stocks, knowing it's a typical fall trend for gasoline (and therefore ethanol) consumption to drop. They knew they could take advantage of herd mentality and stampede the retail investor/trader crowd. With the accompanying drop in corn prices, they knew they could obfuscate the issue. Seems to be working quite well for them.
It would be interesting to overlay ethanol prices as well as consumption on that chart to see what the typical price response to total US ethanol stocks is. Maybe if I get some time tomorrow I'll do that in Illustrator and post the result.
In the meantime, here's a chart of ethanol prices for 2012. Stocks were considerably higher, staying above 20M barrels for most of that year . . .
I can't tell you what the price of ethanol will be next week or next month. I can't predict what the market will value PEIX of any other ethanol producer at in the coming months, but I can tell you I smell something, and it stinks.