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Question for board gurus re historic ethanol/rbob gas relation:
Does anyone have some info on this? Gas has gone up a lot, and rbob is over $1.90 while ethanol lags in the $1.50's. This is a significant discount and should increase ethanol demand from refiners, along with the huge increase in gas demand . It would be helpful to get a grasp on the historic price relationships: is it inevitable that ethanol price will rise to match the increase in rbob? or not?
Thanks form any replies.
Catkin
Dutch, they mean a lot. Oil bottomed when it hit a double bottom at $44 a short time ago. The bear narrative is weaker and weaker as US supply slows down due to rig drops and demand for product ( gas) ramps up with seasonal demand and lower price.( (Refiners are running full steam ahead). The bear scare crap about storage is getting less print too.
Surprisingly, ethanol has lagged while oil is way up and gas too, from lows. They are making money but the spread is still not great is my guess, and the share price reflects all ok but not great yet.
All IMHO....catkin.
From Keith Schaefer letter:
"......am keeping ... both my ethanol stocks—Green Plains and Pacific Ethanol. Crack spreads and crush spreads are actually still quite good, especially in the inland, mid-continent area. (The west coast crush spread is back up above break even to 5 cents/gallon)
PEIX has TWO potentially major catalysts in the coming 12 months. One is the Market getting some comfort with the Aventine acquisition—which is all Midwest. I think this has potential to add $2-$5/share.
(But remember that Aventine shareholders have had no liquidity for 4 years, so they may not care what a great company I think PEIX is and just dump their stock indiscriminately. They all probably HATE ethanol stocks right now.)
The second is PEIX turning its Kinergy division—3rd party ethanol marketing—into some form of MLP structure like Green Plains has done. PEIX trades 2-4x cash flow, and MLPs trade 10-20x cash flow. NO BRAINER. If that happens this calendar year I suspect it will be towards the very end of the year; digesting Aventine successfully is CEO Neil Koehler’s Big Job this year."
Yes, its a mugs game to try to predict. However, here is an up to date view you might find compelling re oil. ( which I share, as you know):
From IV BRY Board: By Nawaralsaadi
STEO positive update
....The EIA has released a quite bullish short term outlook:
Non-OPEC supply estimates for 2015 were reduced by 30% to 700K barrels from 1m barrels estimated last month, and 2016K supply growth was reduced from 500K barrels to 400k barrels.
Non-OPEC Petroleum and Other Liquids Supply. EIA estimates that non-OPEC production grew by 2.2 million bbl/d in 2014. EIA expects non-OPEC production to grow by 0.7 million bbl/d in 2015 and by 0.4 million bbl/d in 2016, in part because of lower projected oil prices. The slower growth in total non-OPEC supply is largely attributable to slower production growth in the United States and Canada and declining production in Europe and Eurasia. After remaining relatively flat in 2015, production in Eurasia is projected to decline by more than 0.1 million bbl/d in 2016. The projected decline reflects reduced investment in Russia’s oil sector stemming from low oil prices and international sanctions.
Global demand estimates were left unchanged for 2015 at 1m barrels, but increased by 10% for 2016 to 1.1m barrels:
Global Petroleum and Other Liquids Consumption. EIA estimates that global consumption grew by 0.9 million bbl/d in 2014, averaging 92.0 million bbl/d for the year. EIA expects global consumption will grow by 1.0 million bbl/d in 2015 and by 1.1 million bbl/d in 2016. Projected global oil-consumption-weighted real gross domestic product (GDP), which increased by an estimated 2.7% in 2014, is projected to grow by 2.6% in 2015 and by 3.1% in 2016.
I believe the EIA will revise its 2015 demand estimates higher in the next few months as increased global demand data is increasingly undermining that 1m growth in demand estimate.
The large cut in supply estimates for 2015/2016 and the increase in demand estimates for 2016 has forced the EIA to reduce its global inventory expectation for 2015 from 2.9B to 2.88B barrels and to reduce 2016 inventory expectations from 2.92B to 2.87B barrels. This is quite meaningful since instead of a growth in inventories in 2016 the EIA is expecting draw-down as of now. These numbers do not include the potential impact of increased supplied from Iran in 2016.
Over the next 7 quarters the EIA expects world consumption growth to outpace non-OPEC production growth:
If it was not for OPEC maintaining production, the world be experiencing a significant supply deficit by Q4/2015.This is a strong confirmation that current oil prices are not sufficiently high for global supply to meet global demand without the contribution of low cost (and politically unstable) supplies from OPEC.
The latest estimate from the EIA and their impact on global petroleum inventories (a key price predictor) are eerily similar to what took place in 2009 with inventories expected to peak in Q3 and decline in Q4, the only difference is the magnitude with OECD inventories peaking at 2.77B in Q3/2009 compared to an estimated peak of 2.9B in Q3/2015 or 4.6% more. However once we factor in the difference in demand between 2009 and 2015 (84.88m compared to 93.87m) we notice that inventories in 2015 are actually lower at 30 days in forward demand in 2015 vs. 32 days in forward demand in 2009.
If it was not for Iran potentially increasingly supplies in 2016, this report would have confirmed a complete recovery in oil prices to the new marginal cost of global supply of $75 to $85 by 2H-2016. Iran notwithstanding, the oil market fundamentals are the healthiest I have seen them since this collapse has started, and future disruptions in supplies (economic or geopolitical) will have a material impact on global inventories and thus prices, and likewise for any major changes in demand due to low prices or better economic growth, such changes will also have a material impact on prices.
The worst is likely over for the oil market, and the WTI is right on queue with my projected move to $55+ in Q2 and thus the bottom for energy stocks is likely behind us.
Regards,
Nawar
Sources:
April 2015 STEO: http://www.eia.gov/forecasts/steo/pdf/steo_full.pdf
March 2010 STEO: http://www.eia.gov/forecasts/steo/archives/mar10.pdf
Time to test re entry into ethanol sector.What do you think?
Call transcript posted on sa. No more detail on buyback but will continue it. Outlook quite muted and describes it as in an industry down cycle. Margins squeezed but rex still making a profit. Nothing revealed in quantitative terms. Looks like a wait and see situation re improbing margins over their q1 and 2
Rule, I believe the current figures show about 77% storage which leaves a lot of capacity left *( 23%) or so. While the amount in storage is at record levels, the capacity is much higher too so capacity utilization is not a record at all. As soon as production builds slow, which may happen as soon as this month, and seasonal refinery runs ramp up for spring/summer driving season, this bs about filling up storage and oil crashing further will subside.
How much will all of that filter down to ethanol pricing, corn pricing, and the ultimately most important metric, production margins, is the big question. I sit patiently to find out and to re-enter this with conviction. glta
Rule, re q1 buying opp, and Value, thanks for the transcript link.
On reading the transcript I think you may be correct Rule. Q1 will definitely reflect the stressed margins....even negative for a time in January according to the call. Congrats to all longs today...I missed out as \I am waiting to re enter with stronger margins and ethanol prices. Waited too long maybe in hindsight!
Q2 and 3 post Aventine may be very good. $11 entry may not be so bad if Peix can get to $15 or so later this year.
Any analysts comment yet post call on PT's?
Here is todays column from Phil Flynn who I think has a balanced analysis re oil fyi:
Hedge Fund on the Run? The Energy Report 3/5/15
Phil Flynn of The PRICE Futures Group - IF - Thu Mar 05, 7:45AM CST
Maybe the Cushing Oklahoma won’t get filled up so fast after all. Hedge funds that had a record short position coming into this week must be a little bit worried that oil prices could not stay lower after the Energy Information Administration reported a mind boggling 10.3 million barrel build in crude oil supply. Yet despite that stunning number in the all-important Cushing delivery point, supply increased by a much less than expected 536,000 barrels. With ultra bears basing their predictions on the fact that Cushing would soon be over flowing this number puts a monkey wrench into their time table. The longer it takes for Cushing to fill the better chance for demand to improve and avoid the tanks from overflowing. That also means that Hedge funds may have to cover as oil seems to be moving out of Cushing Oklahoma and down to the Gulf Coast where supply hit a record high.
Ultra bears were also harping on the fact that oil production continued to rise as the U.S. produced 9.32 million barrels a day, the highest level since 1985, which was expected. . There is absolutely no one that I know of that has ever suggested that the cut in rig counts and capital spending cuts would slow the production growth in the short term. What is expected though is that growth will level off in a few months and then start its inevitable decline later in the year and into next year. That should come at a time when demand is expected to increase as the market gets a global demand boost by global central banks. Even back in 2013 when Cushing Oklahoma supplies were higher that they are now somehow Cushing did not overflow. The increase in supply also will improve the case to drop the ban on U.S. oil exports. Much of that record supply in the Gulf Coast, when he time is right, may start to find its way out into the global marketplace.
The other reason that we saw such a big build in oil supply was down to weather. East Coast refinery output plunged as frozen rivers and refinery girts hampered production. Distillate fuel inventories decreased by 1.7 million barrels last week and are still well below the average range of supply for this time of year. Gas supply came in better than expected, at 46,000 barrels, as demand may have beenimpacted by snow and cold. Over all refineries operated at 86.6 percent of their capacity, down from 87.4 percent the prior week. The national average price of gasoline is $2.44 a gallon. That’s $1.02 cheaper than last year at this time, but up 37 cents over the past month.
Demand prospects are improving. Saudi Arabia has said that prices have stabilized and had the confidence to raise prices. The European Central bank is expected to reveal details of a large-scale QE asset purchase program. If he does not disappoint that should give oil a boost. QE has always been bullish for oil
Hello Petter and Value,
I saw the PEIX massive run up today and regretted that I had not bought back min yet. Like Value, I hesitate because ethanol process and margins are still weak and oil low. I differ a bit from Value's read on oil. I am in the "we have bottomed" crowd, quite solidly so. The contango is what is filling up storage, as buyers buy and wait to sell it. If we were headed for an oil crash in wti, the futures would start to reflect that.
In addition, Cushing has room , as do the pipelines etc. so the dire we are running out of storage stuff is, in my opinion, wrong, and some of it deliberately intended to sway the market.
The trend long term is up, as demand increases annually, and supply gets squeezed due to cutbacks in capex , natural production declines . Even with tight oil productivity gains, we are talking a small amount of bpd global demands.
BaCK TO ethanol, rex, and peix. I am not back in yet, but of course wish I had bought peix in the 9's a few days ago. Now I am watching for a bit of the foam to clear off and may assess peix if it falls back some..Q1 will n ot be the same as q4 14 of course, as prices were weaker q1 overall. However, forward looking, I think positioning for q2 and 3 will be profitable as |I expect ethanol prices to follow gas prices up, and wti to stabalize around $60. All fwiw.
GL
Catkin
Thanks for posting this , Value. Good information for senators debating whether to renew the RFS.
Here is a well thought out article regarding rig counts, productive wells, and probable changes to UYS oil output later this year, fyi:
Shale producers postpone oil well completions
Shale producers postpone oil well completions
LONDON: EOG Resources became the latest major shale producer to state that it would "delay a significant number of completions" when it announced fourth-quarter results.
The company plans to end 2015 with 285 wells awaiting completion services, up from 200 at the end of 2014, it told investors during an earnings call on Thursday.
Continental Resources has also announced plans to go slow on well completions in response to the slump in oil prices.
Apache and Anadarko Petroleum are among other shale producers to announce a deliberate strategy of delaying completions.
US shale producers are postponing well completions to conserve cash and defer production until prices recover.
There are a large number of wells that have been drilled but are awaiting the arrival of pressure pumping crews to fracture them and service companies to link them up to gathering pipelines.
In North Dakota, there were an estimated 750 wells that had been drilled but not yet completed at the end of December, according to the state's Department of Mineral Resources.
Once these wells are completed, they will increase the number of producing wells in the state by more than 8 percent, from the current total of around 8,950.
At recent completion rates, it would take another 3-4 months to clear the backlog even if no new wells were drilled in the meantime.
Similar backlogs have emerged in the other shale plays. They have been a source of frustration for producers and mineral rights owners waiting for the oil to begin flowing and royalty payments to start arriving.
For the most part, delays in completing wells arose inadvertently as drilling outpaced completions during the frenzied drilling boom in the first eight months of 2014.
But now some exploration and production companies are deliberately postponing completions to improve their financial performance.
"It's a much more prudent business decision to wait. It will give us better capital returns if we do that," EOG's chief executive told analysts.
PRUDENT BUSINESS
Postponing completions has a double benefit — it can cut costs and cash outlays in the short term and enhance earnings in the medium term.
The cost and revenue profiles for shale wells are different from conventional ones and it is these differences that shale producers are seeking to exploit by postponing completions.
In a conventional oil well, the cost of drilling the hole (including casing and cementing) typically accounts for almost all the cost. The aim is normally to complete the well, put it into production and start recovering the capital expenditure as quickly as possible.
But with shale wells, the need to bring in specialised pressure pumping equipment and crews, hundreds of water tankers and sand to fracture the rock formation and complete the well adds a significant extra element to cost.
For some shale wells, completion costs now account for up to two-thirds of the total. Postponing completions can defer all these costs and help conserve significant cash in the short term.
In other cases, producers have contracts in place with drillers for an entire program of work cannot cancel them without paying substantial penalty fees, but they can then defer completions to minimize future outlays.
Shale producers are hoping completion costs will fall in future as prices for everything from pressure pumping equipment to fracking sand fall amid the slump in the oil industry.
On the revenue side, the production profile of shale wells is much more front-loaded than conventional oil wells. Initial production during the first 30-90 days tends to be higher but then declines faster.
In the Bakken, for example, a typical well will produce one-third of its expected ultimate production in the first 12 months and about half in the first three years.
Revenues depend on prices from the time the well is completed and put into production. If prices are expected to recover, it makes sense to postpone completions, rather than rush to finish the wells and put them into production when wellhead prices are $50 per barrel or less.
By postponing completions, shale producers are shifting some of their production from the first half of 2015 into the second half or even 2016 in the hope that prices will be higher.
RIGS v COMPLETIONS
By now, it should be obvious that the number of wells completed, rather than the number of holes drilled or rigs operating, is more important for determining short-term changes in oil production.
Completion delays (either unintentional or deliberate) add another source of noise in the very unstable relationship between rig counts and output.
Some observers have dismissed the significance of rig counts entirely, suggesting that they provide no useful indication at all about future production trends.
This is wrongheaded. In an ideal world, it would be nice to have real-time data on completions, and even better on initial production rates. In the real world, however, analysts must make the best use of the data which is available, which in most cases means rig counts.
While rig counts may not be perfect predictor of short-term production changes, they are the only data available in near real-time, and it is incorrect to state that they have no relationship at all to output.
Completion delays, as well as variability in the quality of rig equipment and shale wells, mean the relationship between rig counts and production can be unstable in the short term. Production forecasts based on rig count data must be made with extreme care and are subject to a high degree of uncertainty.
Nonetheless, the sharp reduction in the number of rigs operating in the United States, the smaller number of wells being drilled, and the decision by many shale producers to deliberately postpone completing them, all point to US oil production leveling off by the middle of the year.
— John Kemp is a Reuters market analyst. The views expressed are his own.
Value, I'll say it again: not s chsnce that scenario plays out. I could paste a dozen well researched pieces on the opposite side.
Dutch, this price sounds about right for the next quarter or so. Higher after that imho.As rbob tracks wti and ethanol tracks both, this implies a possible 20% ipside on ethanol bringing it back to about $1.80. Margins ok with that assuming current corn and byproduct pricing.
Seasonal demand increases will help price too.All in all should mean significant sp upside for ethanol stocks later this year. I have not re entered yet, but April or so might be the time to do so if not sometime in March.
Glta
Thanks Value. Yes some off topic info, but it is compelling. The medical isotope especially. ( my son is a medicinal chemist in pharma, so I am already interested in the sector). Re ethanol and rex and peix....for now I may buy peix and sell covered calls , near money, short time span just to make a few bucks and see what happens. Cant option rex.
The scenario these talking heads paint may come to pass, but I seriously doubt it. My favourite expert on this out there is Phil Flynn, ( regular column on barcharts daily,)who I think nailed it with his firm call that oil bottomed at $44. The wti charts looks like it as well
Since then oil has been relatively stable around $50 plus or minus a buck or 2. It drops each Wednesday when production volumes are reported, and rises thur/Friday when rig counts are reported.
Today is a good example. Along with that fluctuation, rex share price follows. Possibly worth a very short term in/out trade to play that repeating scene. However, for a longer term hold margins have to go up and hence my waiting for ethanol prices. The rbob is up significantly from the lows and the forward curve shows that. Come spring and summer driving season it should go up quite a bit more. With it, ethanol demand and price. Low Corn prices, good weather, export demand and a decent rfs decision would seal the deal, all of the latter still up in the air.
You mention some better stock plays right now. I probably agree. Which did you have in mind?
eventually ethanol demand has to increase. When is the question. Maybe 2 quarter.
The bear narrative is to focus only on supply
So far that has worked for them. The tide is turning and supply will tighten in the next few months for sure. I held off today as tomorrows increased supply numbers were easily predicted. A short term negative for oil etc. Watch the rig counts. As they continue to drop the bear narrative will continue to weaken. Those on the short side will talk their book and keep trying to convince people that oil is going to 30 etc. Gs and MS come to mind. When oil comes back to 60 they will suddenly "predict" we saw a bottom.Good for them.
Obviously the hedge funds have decided it time to go long oil.
Ethanol is up with gas. I almost bought back into rex today, but decided to wait to see if tomorrows inventories cause a little pullback first. Then get back in and wait to see the big rig drops Friday. Interesting week for sure. While my oil stocks are still very beat up, I held them at the lows and they are up 25% off those in some cases. Not fun, but eventually I hope to recover most of the losses, but it will take time. Meanwhile, the ethanol play could be very good at some point this year. Question of timing, as always!!
It will hold up but possibly stall then head higher on rig count news Friday. Market is looking to supply tightening h2 15. This is a rational recovery in oil as smart shorts manipulated it down and cover and go long now. What this does to ethanol is what I am waiting to see.
prices firming up I think. Exports will help demand. Oil has bottomed. Still waiting for ethanol to go up with gas. Entry point may be very soon, as the sp creeps up- over 60. Watching Peix as well. My main concern is the thin margins at these prices . If they don't increase the sp will be stuck in this range .
What do you think?
That's the short narrative. GS will keep putting out those releases. SA want oil to stay low long enough to break US producers at the margins. This is occurring now. There are steep decline rates in shale oil plays. Need more drilling to maintain production not less. It will show up by April. Media will report it a month after the fact.bwtfdik?
Rig counts plummeti g. Some shale plays shutting down. This is close if not firm.volatility yes but I say we are there.
pretty negative outlook. However, I think oil might be bottoming here and if so, ethanol may be as well. Itchy fingers at $53
I read crude inventory up 5 million bpd. You have last weeks #.
At these low spot prices exports should be strong.
Let us know when you think it opportune to re enter. I hope by 2H. Perhaps still Mid 50s with positive momentum and sentiment changes by then.
Yes, its a great source...thanks. Here is todays blog.....more negative news unfortunately as supplies build and prices drop....can this go on all year....anyone's guess. :
"Chicago Spot Ethanol Sinks to Six-Year Low on Building Supply
Spot ethanol prices eased again Tuesday, with Chicago area prices posting six-year lows amid rising supply while demand remains weak. Traders await Wednesday's release of U.S. weekly ethanol supply report that's expected to show another build in domestic ethanol inventories for the week-ended Jan. 9.
Prompt delivered ethanol at Argo was talked at a $1.39 to $1.42 per gallon bid/ask, down 1.0 cent. Chicago Rule 11 traded at $1.42 per gallon, down 1.5 cents. Pacific Northwest prompt ethanol traded at $1.46 per gallon, down 9.5 cents."
George Orwel can be reached at george.orwel@telventdtn
Of course I may be wrong but my take is that this will eventually be huge for peix shareholders..next bullish move for ethanol will tell the tale.Will that be 2015 or 16? That is what I am waiting to decide.
Just listened to Chen . Interestingly he asked the same question I had about RIN appreciation. Good answer. Helped explain possible reasons. Also good answers re ethanol margins and prices....will focus on improved plant efficiencies, synergies, lower opex, more co product sales and industry discipline re supply/demand management. . Sidoti analyst is concerned re rfs being negatively impacted by low gas prices. Firm answer that this is not in the cards, but no one really knows imho. What seemed pretty clear is that PEIX is very pumped about this deal and when margins improve again it should be a very profitable merged enterprise.
welcome news, Value.
Lets see if it helps boost domestic prices in the next few weeks/months. Not sure how to interpret the domestic supply build reported this morning, except to say the industry must be going all out .
I have a question too: with RINs trading above 80cents and gas about 20 cents lower than spot ethanol, it seems to my untrained eye that it would be cheaper for a refiner to use a gallon of ethanol instead of a gallon of gas plus one RIN (if they want to blend under 10%). If that is true, why would RIN's be going up and ethanol down, given relative demand?
Ok, so now my confusion re spot and rack pricing continues. Rick's article quotes the rack prices when discussing plant profitability margins in Illinois. Peix sells at spot prices in California....so which ethanol companies sell at spot price and which if any the rack price? sorry for the dumb question but I bet I am not alone in the confusion re pricing in this industry? Further, what price does the refining industry pay for ethanol they need for blending , the spot/cash price or the rack price?
The dynamics of this trade become increasingly more difficult to interpret in my view. The blow to sp today seems to reflect the market finally coming to factor in the shrinking margins that Rule , Value, and others have so well documented for us. This latest post from Value re ethanol, gas and RINS poses the counter argument...increasing demand for ethanol and RINS pushing gas prices higher and ethanol along with them.
I am of the view ( sadly) that the macro push lower for oil and hence gas prices will be the dominating factor in all of this and that resulting margins will be weak for some months. I certainly hope I am totally wrong, and that export and domestic ethanol demand remain strong and stronger and surprises the market although I doubt it, and negative sentiment can be added to the mix here as well. With a new Congress in the USA as well, you have to consider the politician's push for a possible reduction in the rfs, especially if there remains a disconnect between cheap gas and more expensive ethanol. Then add concern over corn prices which it seems could go higher according to some ag pundits.
What does it all mean now? These prices for peix and rex look very tempting, but too dangerous to enter as they could go even lower. (I do think the elusive "bottom" must be near....by end of this quarter perhaps as investors finally take into account the huge reduction in rig counts and impacts on oil supplies through 2H15 and 2016. When rbob starts to climb , that may be an obvious buy signal for beat up ethanol stocks. ( assuming corn remains where it is or lower, Brazilian demand for imports up etc.)I am waiting for this to happen!
Thanks for this. Question: what do you have peix price per gallon? I see Kment has national rack price at $1.98 today :
" The national average rack price fell 2.03 cents per gallon, falling to $1.9847 "n
Thanks Value....any bit of good news for USA ethanol is welcome indeed!
Waiting for oil and gas to stop falling. Then one can (hopefully) re enter ethanol stocks with both hands and feet. I thought we hit bottom at $65 oil, now I hope its no lower than $45 oil. Insane!This is NOT a supply/demand issue as the analysts repeat ad nauseum. We have a 1% extra supply over demand, so the price drops over 50%? At some point this comes ROARING back. Then the smart talkers will say they all predicted that.....but today they talk $30's ....it is sooo easy to call a falling knife when it is in midair. Rex tro $100 and PEIX to $25+ ( end 2015 - 2016 fingers crossed??) glta on another shty market day
Rig counts are down. They are cutting already but this wont show up for months. The Saudis and Russians have not cut and so the showdown continues in oil. The insanity goes on and mid to low 40's possible. My other worry is rbob at 1.39 and lower. There will be pressure to cut ethanol blend required and ethanol could keep following gas down. This will all eventually turn up but when?? That is the billion $ question and whoever gets it right will make a killing on the upside.
Thanks for your thoughts on this, Value. Very thorough and helpful. I tend to agree with you re oil prices, a test of 50 is almost certain imho. However, the difference between 50 and 52 is mostly psychological. Hoping for a bounce off 50, some stability, and a slow recovery through 1H15. Timing is important, and I am determined to re enter in REX and Peix sometime in the next quarter or 2.
Re PEIX: very hard to evaluate them until we get a sense of all the factors you mention. an eps estimate is impossible for now. However, once the dust settles, and the markets improve for ethanol, they should get a higher multiple on their earnings, be less volatile, as should REX .
Take care, Catkin
Value, just curious....with PEIX acquisition, did that change your relative evaluation re REX vs Peix as an investment thesis? Also, it looks like perhaps a "bottom" in oil and gas lately and a time to re enter the ethanol trade. What is your view?
Thanks, Catkin
Thanks, Pavement. Can you remind me of the calculation you are using to get that 60 cent rough estimate .....? Thanks.
CORRECTIUON TO LAST POST RE NUMBERS:
Apologies to the board . Must have had a seniors moment with the math:
at spread of 23 cents, the production margin for peix would be about 12 cents, and eps about 7 cents. Again, real back of envelope type, of figures, but pretty lean stuff at current spreads. Bottom line: The acquisition looks great, WHEN spreads improve.
Hbk, while I agree with your overall sentiment on this acquisition,
I have to question your numbers re crush spread.
You said " First on a positive note as well, corn seems to be coming back to earth at sub-4$ prices (which i suspect it will remain for some time now) and current ethanol/corn futures crush spread is at $0.63 as of 11am today. "
I calculate a spread based on corn at $3.90 bushel/2.8 and ethanol Jan 15 at 1.62 as 23 cents, not 63 cents. This may very roughly translate for peix as a production margin of about 35 cents and net eps about 20 cents. Of course with the increase in production, increase in efficiencies, increase in share count, cali prices and corn costs,these figures are possibly way way off. But for back of the envelope stuff they may be worth thinking about.GLTA (Disclosure: waiting for re entry when gas/ethanol bottoms and starts to correct back a bit)
Keith Schaefer wrote a positive note on the merger today, but tempered it with this warning on ethanol prices:
" I’m still thinking that at some point in Q1 2015 ethanol has to drop 50 cents a gallon, to be 30 cents a gallon below RBOB, to continue to attract exports. And like I said above, west coast margins are now only 5 cents a gallon—so I don’t know how PEIX stock stays up here at this price level given my line of thinking."
But as far as I can tell, ethanol is already trading on par with rbob prices, and export markets and domestic markets are also supported by blend requirements. Still, his point is well worth considering when deciding to buy this news soon.