Alto Ingredients Inc (ALTO)

[rikelme]

Kel3,

I really appreciate your effort and I'm bullish on PEIX too, but your margin calculation has flaws:

- first, you can't use December's corn price for calculation; a plant can't use December's corn to produce and sell ethanol during the Q3
- even if you could use the December's corn price, you can't just pick a price on a specific date; you would have to calculate its average over the Q3 period

The more accurate calculation would be to use the spot corn price (again, it's average value over the Q3 period) as PEIX doesn't have a lot of cash in hand and it would be best to calculate the works case scenario that they haven't hedged at all, and the average ethanol price over the same period. But, since the ethanol is not made instantly, there is a delay between the moment corn was bought and ethanol made of it is sold. The calculation gets even more complicated when you calculate in the part of ethanol sold at the price that was previously agreed with binding contracts between PEIX and fuel blenders.

Your Q2 calculations were positive too, but PEIX ended up with a loss, which just proves that you can't oversimplify them.

Good luck to us all !