Has there ever been a coordinated cut in production by ethanol producers? I have not followed this industry long so I don't know. But its not like they are like an opec cartel, so there are many obstacles to coordinated cuts....if one producer cuts and the others don't, they others benefit from the cut, those that cut lose etc. etc.
Also, we are dealing with regional markets. In the case of peix, the west ( California) may not have the same prices and glut as other regions? How would that play out?
Lots of questions, few answers. One thing for sure though, the what now seem in hindsight Pollyanna like predictions of ongoing great spreads and rising eps through q 4 at least and 2015, due to great corn harvests sure seems a bit short-sighted. I certainly am kicking myself for not looking much harder at the various elements in the equation that now stare me in the face on the downside: seasonality in ethanol process (fall vs. summer); dropping ethanol prices with dropping input price and market reaction to that(even if superficial);increased production industry wide to exploit good margins, but in the face of decreasing domestic demand; the fact that the market equates ethanol producers sp almost directly with rise and fall of the commodity and does not account for the margins as such....
Do these trump the potential upside arguments, such as still pretty good margins; possible epa ruling to increase demand; (cannot think of any other catalysts for now as I don't see any quick turnaround in an ethanol price held down by seasonal factors as well as supply glut. Anyone else see a catalyst out there? I am holding a lot of both peix and rex, as well as now OTM calls (too friggin many). Question for me is very material. Do we get a little bounce back prior to q3 earnings which will be good? Do you bail then before crappy q4 rolls along, then wait for supply/demand issues to resolve and seasonality kick in on the upside next spring/summer? Or, do you bail now before this goes further into the toilet.?
I have learned a lot about this sector from these boards (peix, value, rex). Your posts and Rule's and value's to name just a few of you, are full of very important and helpful research. The one thing one could use collectively, is a discussion of some of the basic economics that seem to prevail re seasonality, supply/demand issues . Who would have thought that what seemed a great catalyst ( huge corn harvest), would help accelerate a production glut and big drops in the commodity price of ETO. It almost seems counter-intuitive, but now, it seems like obvious classic economics of supply/demand dynamics, and the biggesdtr and hardest issue of all, market timing for an investor in the sector.
glta
AI
