Yes, the PEIX formula was stated in their June presentations to industry. It's also the formula I utilize to calculate their production margin. Simply stated, it's
(CBOT Corn+basis)*(1-Co product return)/2.74
where the default values are
basis = $1.28
Co-product return = 30% (sorry, I have no information that would allow me to break out the WDG and corn oil separately from that)
In other words, the WDG price is a product of the corn price. When corn drops, the WDG price drops. Dairy farmers and cattle producers are not going to pay more than the related cost to derived the same benefit from corn.
As for the export situation, remember that exports were driven by premium prices in China. That made it worthwhile to export. In the case of the domestic market, providers of DDG still have to dry the distillers grains and then ship them if they want to sell in California - expenses PEIX does not incur.
Keep in mind that the default values are averages. In Q2, the basis was substantially lower than the average value ($1.13), while the co-product return was substantially higher (39.5%). Again, this is why it's important to read the 10-Q's thoroughly. Those numbers led to my earlier questions about Kinergy losing money - the overall gross revenue numbers suggested by the plant production values, including the average price realized for ethanol and corn by-products, along with the lower than normal corn basis, suggests the net revenue derived just from plant production alone should be higher than the actual number provided in the 10-Q.
BTW I've noticed that the term "crush margin" is sometimes used in a confusing manner. In some instances it is applied to mean the difference between ethanol and corn prices - or if you will, the spread. In other instances it is applied to mean the same thing as production margin - the difference between corn prices and ethanol + co-products (production margin). That's why I use the term production margin as a matter of clarity.
This brings us back to the spread between corn and ethanol, which is up over Q2, and production margins, which are not. Of course, I've provided those numbers, so anyone paying attention already knows that. They also know that the increase in total production should offset the effect of the Q3 reduction to date in the production margin.
Which of course, returns us to the question of whether PEIX can maintain the high returns on co-products and lower corn basis. I have no answers. While the USDA weekly ethanol report for a number of Midwest states provides the average values for DDG and corn oil in those states, they do not provide the California market values for those products. In the case of the corn basis, however, I suspect that the sweet deal PEIX enjoys with their supplier will continue to keep their corn basis down - especially with Madera (one of two locations where their supplier stores corn) now fully operations.
But hey, the real story here with PEIX is in it's being undervalued in terms of market cap (it's a lot less confusing to use than share price, until the warrants are all over and done with). PEIX revenues are more than in line with the industry, while the valuation remains way below the industry norm.
AI
