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Wednesday, November 19, 2014 12:10:50 PM
PFL Daily Report
The two indicators for the West Coast is NorCal on the first page (that's the main market PEIX sells into). The other indicator further down is the Pacifc Northwest price. That's the secondary market PEIX sells into.
Note that yesterday's bid/ask for NorCal was 2.680/2.700
As for MidWest/Eastern markets, they're more closely tied to the prices put out weekly by the USDA. You can see those prices here. They call it a "daily" report, but the plant prices are only actually adjusted on Fridays.
National Daily Ethanol Report
Normally this big of an offset in prices would drive increased ethanol shipments to the California market. However, rail pressures due to oil shipments (the impact of no Keystone pipeline) and seasonal grain shipments has handcuffed the rail system. We saw the same thing last fall, only this year's grain crops are bigger than last year. So, MidWest ethanol plants are having a difficult time shipping their ethanol. That drives up overall national prices. It drives up West Coast prices even more, as there is nowhere near enough ethanol production on the West Coast to meet demand.
In other words, the PEIX West Coast model is paying off big time right now. There's a big premium in the production margins for West Coast ethanol producers right now.
We can expect turbulence in the weeks ahead. A warming spell will ease at least some of the pressure on the rail system. Another dump of snow exacerbates it. But regardless, the pressure to keep moving oil and grain isn't going to ease from now until the Spring.
Then take a look at Q1 this year. Keep in mind that PEIX no longer has 7M+ warrants hanging overhead. If anything near the current production margin holds, we're going to see Q1-like gross profits, but this time, without the $35M non-cash hit from a FVA for 7M warrants. Even if prices fall somewhat, we could well see Q2 numbers (again without the same scale of damage caused by any big FVA due to the substantially reduced number of remaining warrants).
Then factor in two more things:
1. Dramatically reduced interest payments/quarter due to the pay down of debt
2. Madera didn't come on line until the second half of Q2.
This is the value side of PEIX. The unknown is always the market prices as well as the rail situation. But all things considered, I like the potential.
In addition, Kinergy has been selling into a rising market all this quarter. It sold into a falling market most of last quarter. While we don't know the total percentage of Kinergy open buying and selling (as opposed to the percentage of their overall sales that is straight fee for service) we do know it's enough to affect the PEIX bottom line. And for the past 7 weeks, they have to have been booking some decent profits. Even if the market starts to fall, any profit they booked should more than offset any potential losses for the balance of the quarter on the Kinergy side of the business.
Does that explain why you can't straight-out compare PEIX to MidWest producers?
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