Three Ethanol Pioneers That Could Profit Nicely 16 comments
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With the crash of the ethanol industry, investors have seen a stunning reversal of a technology that seemed so profitable only a few quarters ago. Dozens of plants have been shuttered, and many more plants on the drawing board or in construction have been axed.
And the way the press spins it, ethanol will never be used again in the United States.
But that’s just wrong. Let’s not count this nascent industry out before it’s really had a chance to shine. Some of its biggest obstacles are centered on its major component: corn. The cost of corn plays a major part in squeezing profits – literally – from ethanol.
Just when the industry was starting to take off, the price of corn was skyrocketing. And many of the first movers like Verasun (VSUNQ.PK) and Pacific Ethanol (Nasdaq: PEIX) got locked into pricey, long-term contracts. As prices for corn and fuel plummeted, they were left holding the bag.
Unlike many established commodities-based businesses, ethanol producers haven’t had the history to plan and prepare for the bad times. They don’t have decades-old strategies for locking in low corn prices and carefully hedging their bets. This will come in time to those who make it through the current “economic winter.” Unfortunately, many won’t.
But those that do survive will be well placed to control the industry. Let's not forget that ethanol producers cranked out over 18 million barrels (1 barrel = 31 gallons) of ethanol for the U.S. market in 2008.
If ethanol pioneers like Aventine Renewable (NYSE: AVR), BioFuel Energy Corp (Nasdaq: BIOF) and Green Plains Renewable Energy (Nasdaq: GPRE) can get their cost structure correct, these companies should profit nicely. Until that point, they might need some intensive care.
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This article has 16 comments:
Press spin, or otherwise, I agree that ethanol will most likely never be used again in the United States as an alternative to oil and gas, especially since there are many better and cheaper alternatives, such as battery power, solar power, wind power, and natural gas.
Not true! That measurement applies only to oil. Other liquids (including ethanol) are measured at 31 gallons per barrel, just as the article stated.
1 barrel = 31,5 gal us
= 26.22 gal UK (Can)
= 119.24 Liter
Barrels for most other liquids however, including ethanol, contain only 31.5 US gallons.
Confirm here...
en.wikipedia.org/wiki/...
or here...
www.nationmaster.com/e...)
On Feb 13 12:34 PM cyberclark wrote:
> A barrel is a barrel regardless:
>
> 1 barrel = 31,5 gal us
> = 26.22 gal UK (Can)
> = 119.24 Liter
I recall hearing that it takes 1.5 gals of gas to make 1 gal of ethanol. But either way, I'm not sure that I believe either. I think that it was perhaps some oil company executive who made those statements. Nonetheless, producing ethanol is indeed a very expensive process, and with so little benefit it would appear. It is simply not worth the cost or effort.
The bottom line is this: Why subject us all to $6.00 or more for a dozen corn, and fuel for our cars even more expensive than it is now, if there are no offsetting benefits? Of course if you own a lot of corn-producing land, you may have a completely different perspective, since it would be like having an oil well in your back yard.
On Feb 13 12:05 PM jksisco wrote:
> 42 gallons in a barrel of Oil vs. 31 gallons in a barrel of Ethanol
> means Ethanol is even less competitive than Oil. I read that it takes
> 2 gallons of gas to produce 1 gallon of Ethanol, plus the higher
> overall price of corn = one really bad way to produce energy, hardly
> reducing any so-called greenhouse gases. Makes one wonder what the
> true cost (eco-friendly wise) of solar and wind might be, as well.
All your comments are 100% right on.
I stand corrected !
On Feb 13 05:32 PM BOBBY CURTO wrote:
> Hey Marcap,
>
> All your comments are 100% right on.
> I stand corrected !
Ethanol had a very insignificant role in the increase of food prices. Corn prices skyrocketed last year because of speculation, not because of supply and demand. Corn carryout will be in the 1.8 billion bushel area. There is hardly a shortage of corn. Without ethanol gasoline prices would have been 15% higher last year. I know corn ethanol is not the long term solution, but it is a vital piece to energy independence. Corn ehtanol is needed to establish and maintain an infrastructure for distribution and use. Cellulosic ethanol is viable, but needs a firm basis to encourage more investment. Other alternatives are not even close. We are not ready to give up our powerful combustion engines. There is new technology that fully utilizes the strengths of ethanol to get better mileage. Unless you have something besides depending on our friends in the middle east to supply us with our energy needs, become educated and support what we have.
On Feb 13 03:01 PM Marcap wrote:
> Hi jksisco,
>
> I recall hearing that it takes 1.5 gals of gas to make 1 gal of ethanol.
> But either way, I'm not sure that I believe either. I think that
> it was perhaps some oil company executive who made those statements.
> Nonetheless, producing ethanol is indeed a very expensive process,
> and with so little benefit it would appear. It is simply not worth
> the cost or effort.
>
> The bottom line is this: Why subject us all to $6.00 or more for
> a dozen corn, and fuel for our cars even more expensive than it is
> now, if there are no offsetting benefits? Of course if you own a
> lot of corn-producing land, you may have a completely different perspective,
> since it would be like having an oil well in your back yard.
>
> On Feb 13 12:05 PM jksisco wrote:
That energy ratio study was a "peer review" study (reviewed and commented on by critics of corn ethanol) done by the Univeristy of Nebraska and took into account the better efficiencies being employed by the American farmer and modern ethanol plants (the vast majority of producing plants today are fairly new). The study also conlcuded that for each 1 gallon of oil consumed in the full farming-to-plant-to-en... user cycle cost, between 12 and 19 gallons are produced.
Check out the study, its only been out for a few weeks. It also has good things to say about the carbon footprint (but we knew that anyway).
On Feb 16 10:48 AM Jetty wrote:
> You "recall hearing" is not a very scientific basis for bashing a
> viable product. The most recent studies have indicated that ethanol
> has a 1.4-1.6 possitive energy balance. In other words you get 40-60%
> more energy than is used to create ethanol. Gasoline has a negative
> energy balance of about 25%. So there is a significant energy gain.
>
> Ethanol had a very insignificant role in the increase of food prices.
> Corn prices skyrocketed last year because of speculation, not because
> of supply and demand. Corn carryout will be in the 1.8 billion bushel
> area. There is hardly a shortage of corn. Without ethanol gasoline
> prices would have been 15% higher last year. I know corn ethanol
> is not the long term solution, but it is a vital piece to energy
> independence. Corn ehtanol is needed to establish and maintain an
> infrastructure for distribution and use. Cellulosic ethanol is viable,
> but needs a firm basis to encourage more investment. Other alternatives
> are not even close. We are not ready to give up our powerful combustion
> engines. There is new technology that fully utilizes the strengths
> of ethanol to get better mileage. Unless you have something besides
> depending on our friends in the middle east to supply us with our
> energy needs, become educated and support what we have.
However, once someone hears something negative (like the Pimentel study so long ago) they just can't forget it.
Nothing has been better for the economy of the heartland of America than Ethanol and Ethanol is good for American's energy consumption needs and control of greenhouse gasses.
Like anything else reported in the press, half of what you hear about ethanol is tainted by the uninformed political/social sentament of some news anchorette who wouldn't know a corn plant from shatter cane. The other half is guess work and speculation.
As far as ethanol companies getting cost under control, Green Plains (for one) is in the process of controlling their product from corn field to fuel pump. Besides their two new production plants, they have purchased at least one grain elevator in Essex Iowa that buys corn directly from local farmers. They also have 51% interest in Blendstar, an expanding terminal company with the current capacity to handle 200 million gallons of ethanol per year.
I owned GPRE stock at one time, and have an alert set to get back in if things work out where I have money available when the stock prices hits a given level.
For all those who are worried about prices and corn shortages, any raise in corn price or shortage of corn is only a momentary thing since higher prices = more corn planted = lower prices. Contrary to the popular belief on both coasts, farmers here in Iowa are not stupid.
In 2005, corn was about $2/bushel, in 2006 $3, in 2007 $3.75, in early 2008 $5.71 and as of Dec 2008, $4. The 2008 spike will cause more corn to be planted this spring and the price should drop accordingly.
www.farmdoc.uiuc.edu/m...
Strangely enough, I don't remember hearing stories about the predicted mass starvation in Latin America because they couldn't afford to buy our corn.
Ethanol is not the solution to our energy issues, but it is a short term fix while the research and development in other options is progressing. And didn't Mexico's corn industry have to convert to Agave because of the US corn supply flooding the market? This could be a way to help our neighbors down south be profitable once again, and maybe then some who are not supposed to be here would go home!!
I would rather pay $3 per gallon for E85 and keep the revenue here in the US than pay $2 for gas that funds groups that plot to destroy our country. I mean come on people!!
Ethanol is not the answer to our energy problems, but it helps us reduce the need for oil while other research is done to find the next big thing for energy. Isn't competition in markets a good thing?
As for the economy, correct me if I'm wrong, but didn't a majority of corn farmers in Mexico have to switch to Agave and even be subsidized because of the US corn supply? Wouldn't it make sense for them to be growing corn and actually be profitable again. Who knows, that could even help our illegal alien issues as well!