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Tristan R. Brown

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  • Since RFS Went Into Effect, Corn, Not Oil, Drives Up Food Prices [View article]
    Caveats aside, your conclusion still manages to make the classic mistake of confusing causation and correlation. How do you know that higher food prices aren't "driving" corn prices? Or that increased demand for feed in China isn't? Consider adding the amount of the Federal Reserve's balance sheet to your analysis (which reflects QE). When I last ran that particular analysis in 2012, the R2 value equalled 0.8. More to the point, other commodity prices, which are affected by QE but not by the RFS2, correlated quite closely to it as well. Mere correlation analysis is an insufficient tool for an issue that is this complex so long as you are going to strongly imply a causal relationship from your results.
    Aug 11 09:06 AM | Likes Like |Link to Comment
  • Renewable Energy Group Has 150%+ Upside On Higher Capacity And The Blend Wall [View article]
    GEVO's something of a wild card in the biofuels race. It's the only existing pathway that can both use corn starch as feedstock and qualify as an advanced biofuel. It isn't a true drop-in biofuel, although it does have superior blending and fuel characteristics than ethanol. That said, it's been struggling to get its pathway to perform optimally at the commercial-scale and is racing against cash burn. Finally, there's the issue of the lawsuit with Butamax; patent battles can bring down a company in the blink of an eye. GEVO's very risky, although it has a very large potential upside if it can overcome the aforementioned issues.
    Aug 7 10:09 AM | Likes Like |Link to Comment
  • RINs Take A Big Bite Out Of PBF Energy [View article]
    Thanks for the link. Here's the link to the EPA's rule [pdf]:

    This adds quite a bit of uncertainty to the 2014 RVOs. I'll be especially curious to see how the EPA handles the issue of FFVs that aren't being fueled on E85 blends when it comes to calculating the RVOs.
    Aug 6 03:10 PM | Likes Like |Link to Comment
  • Renewable Energy Group Has 150%+ Upside On Higher Capacity And The Blend Wall [View article]
    Perhaps not, but there's still room for expanded soybean production in the U.S. Soybean acreage is barely above its 2010 figure, while corn acreage is 13% above its same figure. I'd expect to see increased lipids production as farmers who switched to a corn-corn rotation in recent years revert back to a corn-soybean production. That, and U.S. soybean exports have remained stable since biodiesel production took off in 2006, suggesting that there's still a fair amount of leeway before we experience a lipids shortage. Besides, it's one thing to argue that African children are starving because of corn ethanol production, quite another to argue that Chinese cattle aren't getting enough U.S. soybeans.
    Aug 5 04:19 PM | Likes Like |Link to Comment
  • Renewable Energy Group Has 150%+ Upside On Higher Capacity And The Blend Wall [View article]
    I'd be very surprised if the EPA didn't use its authority under the RFS2 to increase the biomass-based diesel RVO in the future as market conditions permit. After all, it increased the category's volume by 28% during the peak of the 2012 drought (and amidst the subsequent media uproar over biofuels as a contributing factor). At present the biomass-based diesel RVO is one of the best methods of reducing transportation fuel GHG emissions in the EPA's arsenal, as well as the sole bright spot in the RFS2 at present. Even if the EPA did leave the category's RVO at its present levels, the continued inability of ethanol to overcome the blend wall gives biodiesel and renewable diesel a large growth opportunity since they both qualify for the D5 and D6 categories as well.

    I agree that the biggest potential market in the future will be for cellulosic biofuels. I don't expect them to reduce RIN prices in the next several years since even an extremely optimistic production estimate based on current construction has them achieving a mere 23% of their mandate in 2014. The EPA will continue to revise the cellulosic biofuel mandate down to meet actual production in response (particularly in light of last January's Court of Appeals decision), so there will be virtually no opportunity for cellulosic biofuel to achieve overproduction and earn D5/D6 RINs.
    Aug 5 03:22 PM | Likes Like |Link to Comment
  • Renewable Energy Group Has 150%+ Upside On Higher Capacity And The Blend Wall [View article]
    Thanks for the comment. Independent Director Jonathan Koch has sold 3.2 million shares in a series of transactions since June. He is the only insider selling at the moment (with the exception of 12,000 shares sold by a VP in July). This follows the purchase of a combined 203,145 shares by several directors and executives in May. I can't entirely discount the possibility that Koch is privy to unpublished negative information about the company, although such a large liquidation would suggest that personal reasons (investment portfolio reorganization, divorce, lack of financial liquidity, tax/estate planning, etc.) are a far more likely explanation.
    Aug 4 02:47 PM | Likes Like |Link to Comment
  • Renewable Energy Group Has 150%+ Upside On Higher Capacity And The Blend Wall [View article]
    Thanks for the comment, Robert. I agree that their feedstocks are capped, although the biodiesel industry still has a decent amount of potential growth before lack of supply becomes an issue. Long-term, biodiesel producers will face a challenge from renewable diesel producers such as SYNM due to the latter's superior fuel characteristics and energy content, although this in part assumes that hydrogen will remain an inexpensive input relative to ethanol/methanol in the future. I don't expect renewable diesel to pose a challenge to biodiesel for at least a few years, however, due to the relative lack of capacity. Renewable diesel volume is 1/10 that of biodiesel; furthermore, while 50-67% of biodiesel capacity is still idled (depending on the source), renewable diesel capacity can only improve with new construction, all of which is currently limited to Louisiana. It will take at least a two years for renewable diesel to improve its own capacity in a meaningful way (and probably closer to 4-5 years based on current construction trends).

    But yes, I certainly agree that renewable diesel has superior growth prospects over the next 10+ years for the same reason that drop-in gasoline has better prospects than ethanol.
    Aug 4 01:23 PM | 1 Like Like |Link to Comment
  • Renewable Energy Group Has 150%+ Upside On Higher Capacity And The Blend Wall [View article]
    Thanks for the comment. Yes, I didn't mention that the overwhelming majority of REG's feedstock is now from non-soy sources. In addition to being cheaper than soy oil, these feedstocks allow for the company to diversify itself geographically (which likely has played a role in its purchases of facilities outside of the Midwest). I certainly struggle to see Congress or the EPA penalize REG for producing biofuel with a 60-80% smaller GHG footprint than petroleum via use of waste feedstocks.
    Aug 4 01:17 PM | 1 Like Like |Link to Comment
  • Pacific Ethanol's Low Price Is An Aberration [View article]
    Adding to jsIRA's comment, PEIX's long-term operating environment is not nearly as attractive as the other companies mentioned in the article due to the blend wall; ethanol producers will need to pass high RIN prices onto consumers if the ethanol market is to grow in the future, while producers of non-consumer fuels can use those same prices to expand production.
    Aug 2 12:14 PM | Likes Like |Link to Comment
  • Time To Take Profits On Green Plains Renewable Energy [View article]
    Thanks for the comment. However, while REGI has indeed grown more, consumption of its primary product (biodiesel) can double in the U.S. before it reaches its own blend wall. Ethanol cannot. Furthermore, biodiesel producers received a very large and retroactive extension of the biodiesel blending credit back in January that should greatly boost profits. Corn ethanol producers have received no such credit since the ethanol blending credit expired back in 2011. I believe that it is a mistake to compare REGI and GPRE as a result; their operating environments are very different.
    Jul 30 02:51 PM | Likes Like |Link to Comment
  • Encouraging Petroleum Imports Is A Dumb Idea [View article]
    Thanks for the comment. Regarding this, statement, however:

    "Nobody "forgot" that rice is not used in the production of biofuels (are we really that stupid?)"

    Many commentators at the time were that stupid. Take, for example, the UN official who labeled biofuel production a "crime against humanity" in late 2007 as food prices began their rise:

    Take a look at most of the major headlines from 2007 and 2008 that attributed the 100% rise in corn prices at the time to U.S. ethanol production. The allegations were all based on people forgetting that correlation and causation mean very different things. Then look at the peer-reviewed article that I cite to in the rice price chart - U.S. corn exports actually increased in response to the high food prices. The food versus fuel explanation simply doesn't explain the price movements that occurred in 2007/08. While that fact doesn't mean that such a situation can't happen in the future, those who attributed the 2007/08 "crisis" to ethanol production were fundamentally wrong.

    If you still don't believe that, consider the fact that all major grain staple prices began crashing (not sure how else to describe 50%+ falls) immediately after the rice harvest numbers were announced in 2008 but three months before the financial crisis hit. Meanwhile, U.S. corn ethanol production increased by 50% in 2008 over the previous year. Food versus fuel was a nice theory for explaining the 2007/08 price increases, but it lacks complete support from the historical data.
    Jul 30 02:47 PM | 1 Like Like |Link to Comment
  • Can Ethanol Overcome The Blend Wall? [View article]
    Ike, KiOR's biocrude is hydroprocessed into gasoline and diesel fuel. If you read through some of my articles from last summer/fall, you'll see that their fuels have been certified as gasoline and diesel by the EPA, and that they have begun shipments renewable diesel from their Columbus facility. KiOR's fuels are 100% renewable hydrocarbons.
    Jul 30 01:44 PM | Likes Like |Link to Comment
  • Pacific Ethanol's Low Price Is An Aberration [View article]
    Thanks for the comment, Tiro. I expect the referenced USDA rule to further push down corn prices by increasing the supply of ethanol feedstock, particularly since they'll be selling it at a loss. This will further benefit ethanol producers such as PEIX.
    Jul 29 04:46 PM | Likes Like |Link to Comment
  • Pacific Ethanol's Low Price Is An Aberration [View article]
    Bill, thanks for the comment. The biofuel producers should receive most of the RIN value since they are the only parties capable of increasing the supply of RINs. Blenders collect the RINs at the point of blending but they can only generate separated RINs by purchasing biofuel (and the attached RIN) from the producer. The article that you linked to is actually something that I covered in an article published yesterday:

    A favorable crush spread means that biofuel producers no longer need the full RIN value to be profitable; furthermore, the blend wall means that RIN prices are now subsidizing ethanol consumption (in the form of higher blend rates) rather than ethanol production. Some producers are using the RINs to discount the cost of these higher blends as a means of incentivizing their consumption by way of counteracting the implicit costs associated with it (e.g., FFVs, E85 pump installation, etc.). The reason that biofuel producers are only providing this discount when they are also the blender is because otherwise they run the risk that the primary blenders (big refiners) will sell the biofuel at market price and pocket the difference.
    Jul 29 04:44 PM | Likes Like |Link to Comment
  • Can Ethanol Overcome The Blend Wall? [View article]
    Ethanol has 67% of the energy content of gasoline, so even running on E100 would "only" generate a 33% reduction to fuel economy.
    Jul 29 04:35 PM | 1 Like Like |Link to Comment