Alto Ingredients Inc (ALTO)

[Rule_62]

Catkin, I will never try to persuade someone whether to buy or sell. For starters, I don't know where anyone bought in, their investment/trading strategy (including whether they sell options against their holdings or otherwise utilize a hedging strategy), or their tax situation. All of those are serious considerations.

I do know that selling from a profit position is always better than selling from a loss position. As the old saying goes, it's only a profit (loss) once you book it.

One thing for certain: PEIX is going to be volatile in the coming months. In all likelihood it should book a profit in Q4, but even in the short time frame since someone asked my take on what those profits might look like, things have changed. So too with Mr Lin's comments. They were brilliant when reflected upon against the time frame in which they were made (late September/early October). The more important question would be, how might those comments have changed if he was asked the same questions today. Which brings up the larger point: over what time frame are any observations valid? This industry is very capable of turning on a dime. Is it about to turn again? Who knows?

I do know that observations about the US gasoline market should not be transposed on the international market. For starters, US gasoline prices are not the norm. Gasoline costs more in pretty much every other industrialized country than it costs in the US. Sitting here in Canada, I'm only too aware of that fact, and I live in the major oil producing part of the country. Ethanol is still considerably cheaper than the retail price of gasoline. Like about a buck less (and that's adjusted to US dollars). And much like the US, gasoline in Canada is cheap compared to most industrialized countries.

So what? Historically the sum total of US ethanol exports are a mere drop in the bucket to the total production figures. What makes that interesting, however, is the fact that during the time of year when ethanol production typically tails off due to seasonal decreases in US consumption, it's doing something unheard of. It's running flat out. Unfortunately, the EIA doesn't see fit to keep us up to date on exports. Is the export market still there to support ongoing production? Given that we're not privileged, we won't even get to see the October export numbers until the end of December.

I do know this: something is driving the demand on corn futures, and it's not failed crops. In fact, the pattern is very similar to to last year, only last year the demand didn't hit until year end. Considering on average that 20% of the US corn crop goes to exports. According to the most recent WASDE report, there hasn't been and significant change to overall corn production or demand. If anything, there should be a glut.

The other 80% is consumed domestically. Here's a historical chart of that consumption by category:



So, who's using it? More importantly, who's driving the projected demand? Certainly some of the price pressure is being created by the cattle industry, but that doesn't (in my mind at least) offset what would historically be the seasonal production lows in the ethanol industry. Especially in a record harvest year. At best, I would expect it to remain steady. Instead, we've seen continued price pressure. The near futures price on October 1st was $3.21. Nov 1st it was $3.73. Dec 1st it was $3.75. As of Friday, it was $3.96.

I don't know the answer to the question of what's driving corn demand, but if it's ethanol, it's at least something to consider in relation to all the weight being given to gasoline prices.