Oil plummeting from $52s to mid $47s in just two trading days. This is what i was afraid of and why i had to sell REX back in Dec. up at avg $63.50s.... Almost all names in the energy sector are getting beaten up very badly by this plunge in oilprices, especially when it takes down the general markets with it. All the big indices including the smallcap etfs have triggered Parabolic-SAR "sell" signals yesterday or today on the big slide down, meaning it could get worse before it gets better.
Over at S.Alpha, in the comment thread to an article yesterday about grain prices, the poster Diligent Investor this morning posted this bearish set of remarks about the ethanol sector--NOTE ESPECIALLY THE COMMENT FROM GPRE'S CEO TODD BECKER SUGGESTING THAT THE ETHANOL INDUSTRY WON'T BE ABLE TO MAINTAIN THIS LEVEL OF PRODUCTION.
My own thinking is that if Brazil does in fact import some 300million gals of ethanol from USA (as GPRE's Todd Becker discussed back in late Oct's earnings call), then the demand will be there to raise ethanol prices and maintain production levels, even if ethanol trades at a premium for many months to gasoline prices:
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Here is an interesting quote today, from the chief executive of Green Plains Inc. (GPRE) one of the largest ethanol producers in the US;
The shift in the sector’s profit outlook means some ethanol makers may have to ratchet down production from the record levels experienced in recent weeks. “I don’t think we’ll be able to maintain these production rates as an industry,” said Green Plains Chief Executive Todd Becker.
And another interesting quote;
“I think we’re facing a period of dim ethanol prices and profitability,” said Scott Irwin, professor of agricultural economics at the University of Illinois. “At $1.50 [per gallon for the] wholesale price for gasoline, ethanol producers can’t pay $3.75 per bushel of corn and make money. It doesn’t work.”
One wild card for the industry in 2015 may be exports. Demand from some overseas buyers may ease if cheap oil and gas prices reduce the incentive to add ethanol to fuel supplies.
Export markets are the “ultimate swing factor,” said the University of Illinois’s Mr. Irwin, noting that sales of the biofuel to places like the United Arab Emirates have been the driving force behind recent strength in ethanol prices. “If the market incentive is removed, that process is reversed.”
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