Alto Ingredients Inc (ALTO)

[Rule_62]

Hey danke, I'm spending some time going over the Aventine financials contained in the S-4 this afternoon. It would appear that they got caught hedging corn in 2013. From pg 55:

Corn. For the nine month period ending September 30, 2014, Midwest spot corn prices averaged approximately $4.30 per bushel compared to an average price of $6.29 per bushel during the first nine months of 2013, a decrease of approximately 32%.

Aventine continuously purchases corn for physical delivery from suppliers using forward purchase contracts in order to assure supply. As Aventine does this, it may sell a like amount of Chicago Board of Trade (“CBOT”) corn futures with similar dates to lock in the basis differential. On occasion, Aventine uses CBOT futures contracts to lock in the price of corn by taking long purchase positions in CBOT contracts in order to reduce Aventine’s risk of price increases. Exchange traded forward contracts for commodities are marked to market each period. Aventine’s forward physical purchases of corn are not marked to market. At September 30, 2014, Aventine had fixed-price contracts for the delivery of 3.7 million bushels of corn through January 31, 2015.

So it appears that had they bought at market during those 9 months, they would of paid somewhere around $6.29 a bushel instead of the $7.14 they ended up paying.

There's some excellent information in this document. For example, the co-product return for Aventine was 47.1% for the 1st 9 months of 2014 (compared to 37% for 2013). That's considerably higher that the typical return PEIX sees. I assume the lower 2013 number was in larger part due to the higher price of corn.

They also give an excellent breakdown of costs. These numbers will be very helpful going forward in attempting to estimate their quarterly revenue going forward. The following is from pp 57-58:




Now if we can determine where that ethanol is typically shipped to, it might give us the shipping cost to CA from Nebraska. In addition, the utilities, salary, maintenance, denaturant and general overhead costs can be applied against operating revenues in order to come up with an estimate of net operating revenues going forward. Of course, a breakdown of PEIX numbers like this would be extremely helpful.

Another thing to keep in mind is the effect of their use of sugar as a feedstock throughout 2014. Then there's the impact of financing costs . . . mind you PEIX states that re-financing that debt will be one of the 1st priorities, so interest costs may go down.