Why I'm Selling Pacific Ethanol

In May of last year, I took a look at competitive forces in the corn ethanol industry.  While I was rather negative on the industry at the time, when ethanol stocks fell in the summer and fall of 2007, I called the bottom much too soon, and decided to dabble in the industry. 

I thought that Pacific Ethanol's  (PEIX) strategy of arbitraging the costs of transporting corn vs. the costs of transporting ethanol and distillers dried grains would lend them some protection from industry overcapacity.  Whatever protection they might have had was not enough. 

With current liabilities exceeding current assets, and operating cash flow from the last 6 months exceeding cash on hand, PEIX will probably need to raise new capital to stay afloat, something I doubt the company can do on favorable terms in today's climate.

DISCLOSURE: No position.

Comments

[petervankan:]

Aventine seem sto handle the business best. It may get a boost from Verasun's and Pacific's hardships.

2008 Sep 28 11:29 AM

[NOWHEREMAN:]

CNG and all electric vehicles, where does ethanol play a part in that environment?

2008 Sep 28 04:45 PM

[NOWHEREMAN:]

Yes, I've noticed that no one seems to mention the effect that ethanol has in the Global warming scheme either. The gases released in the burning of ethanol are in their own way just as harmful as CO2.

2008 Sep 28 11:44 PM

[drmackey:]

The next time you are at a fuel station and there is a tanker dumping fuel into the ground tanks, stroll over and ask just how much ethanol is going in also. You will be surprised. I hold free shares of PEIX, after selling at a
high, so I'll just keep them and someday?? they just might be at that high again.

2008 Sep 29 01:38 AM

[NOWHEREMAN:]

or better yet, one should check to see whether Insiders feel these levels are undervalued. If they are selling at depressed prices, why would anyone consider purchasing them?

2008 Sep 29 05:54 AM

[Bill6:]

Bummer for you. It went up 50% the day after you sold it. Doh!

2008 Sep 29 06:35 PM

[Bill6:]

Bummer for you. It went up 50% the day after you sold it. Doh!

2008 Sep 29 06:35 PM

[IsThisRight:]

Another 'financial engineer' who does not understand the business. The company had a construction program going for 3 years. You can look at current expense vs income. Of course the outflow of $ are more than income... If you understood the business part, you would have excluded construction expenses and make your deduction on 1- cost of good sold, and 2- SG&A and 3/ on Margin. At least your argument would be on solid ground.

Funny, ...my second comment is that you made your observation right around when they announce that they have COMPLETED their construction of 4 plants and now have reached the 220billion gallons capacity that they had as a goal for the company. Last celebration opening day on Oct 10.

2008 Sep 30 11:16 AM