Ethanol fuels surge in stocks
Several companies enjoy run-up in their shares thanks to investors cashing in on interest in additive.
John Seewer / Associated Press
By next week: $3 gas!
TOLEDO, Ohio -- Only a handful of investors knew about The Andersons Inc. and its grain storage and rail car businesses a few months ago. Even in its hometown, the company is better known for stores that feature a wide range of microbrews, fresh breads and garden supplies.
But the company's recent entry into the burgeoning ethanol industry has sent its stock soaring. Investors are betting that new energy regulations and high gas prices could lead to an earnings bonanza for companies like The Andersons, ADM and Pacific Ethanol that produce the fuel additive made from fermented corn that allows cars to run more cleanly.
"Right now making ethanol is almost like having a money machine," said Spencer Kelly, an ethanol analyst for the Oil Price Information Service in Rockville, Md.
The surge of interest in ethanol was first fueled last July when Congress passed an energy bill requiring the United States to use 7.5 billion gallons of renewable fuels by 2012. Ethanol producers now have the capacity to produce about 4.3 billion gallons.
U.S. refiners are clamoring for more ethanol also due to the phaseout of a natural gas derivative called methyl tertiary butyl ether, or MTBE, that allows gasoline to burn more cleanly but also has some health risks.
Individual investors, too, can put money into only a few public companies making ethanol.
Shares of Decatur, Ill.-based Archer Daniels Midland Co., the nation's biggest ethanol maker, have been trading at 52-week highs in recent weeks, closed at $36.24 on Monday. Shares of Pacific Ethanol, which plans to open its first plants this year, nearly doubled in January, the same month that President Bush touted ethanol in his State of the Union speech. Shares closed up 15.7 percent on Monday at $33.88.
The Andersons' stock has been rising since 2001 when it traded below $8. The stock really took off last November, when it was trading around $40 a share, after strong earnings from its rail operations and announcing plans for a second ethanol plant. It closed up 5.6 percent Monday at $91.40.
The cost of ethanol's main ingredient, corn, can move up and down based on the weather's effect on the crop. A sharp increase in corn prices would translate to higher production costs for ethanol makers.
Analysts say a drop in oil prices also could cut into the profits of ethanol makers because ethanol's cost is directly tied to gas prices at the pump. A rush in demand for fuel efficient cars or a decision to drop government incentives for ethanol also could spell trouble.
The Andersons, based in suburban Maumee, is investing about $250 million in two ethanol plants in Michigan and Indiana. The plant in Michigan should open in August.
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