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Tristan R. Brown  

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  • Renewable Energy Group Has 150%+ Upside On Higher Capacity And The Blend Wall [View article]
    Stifel Nicolaus downgrade is the only headline I've seen. I suspect this is in response to the EPA's proposal to reduce the advanced biofuels mandate in 2014 and 2015 and the consequent collapse of RIN prices.
    Oct 25, 2013. 10:23 AM | Likes Like |Link to Comment
  • Gevo's Run Of Bad Luck Continues [View article]
    This isn't worth discussing further if you're simply going to insinuate that my disclaimers at the beginning of the article are false. However, let me just say that:

    1. I'm widely published in the field of bioproducts techno-economic assessment and it is a well-established fact in that field that bench- and pilot-scale numbers are a terrible basis for making accurate commercial-scale production cost estimates;
    2. There is no reason to believe that Gevo is any different from all of the other advanced biofuel companies that have missed their initial production cost estimates, particularly if you account for the cash burn during the Luverne facility's downturn (which must be considered); and
    3. My timing had everything to do with the fact that the EPA's proposal to reduce the 2014 volumetric mandates will be old news come November 5.

    Good luck with your investment.
    Oct 24, 2013. 06:32 PM | Likes Like |Link to Comment
  • Gevo's Run Of Bad Luck Continues [View article]

    Regarding the advanced biofuel mandate, I refer you to the Biofuels Digest link contained in my article. According to BD, which reviewed the EPA's draft proposal, the document calls for the advanced biofuel mandate to be reduced in 2014 and 2015 from the original levels.

    I refer to the isobutanol as biobutanol to differentiate Gevo's product from the fossil fuel product - for much the same reason as many people refer to "bioethanol" and "biogas."

    Regarding the cost estimate, I have no doubt that Gevo has calculated that its pathway is 30% cheaper than the fossil fuel pathway. However, this estimate cannot be based on commercial-scale production since no such production exists. Therefore it must be based on either bench- or pilot-scale numbers and, in my experience, these almost always underestimate the actual costs of a pioneer commercial-scale facility such as Luverne. Again, this isn't a knock against Gevo - I have no doubt that they followed the commonplace techno-economic assessment methodology in generating their estimate. Rather, it's an underlying flaw with the commonplace methodology. Furthermore, refer to my comments on the inherent unsuitability for a point estimate (i.e., "30%") for such a novel pathway.

    Referring to the market size, note that the 110,000 metric ton number includes Luverne. In other words, Luverne will double U.S. isobutanol output when it achieves full production. While there may be demand for the product after this occurs, it is highly unlikely that the current high isobutanol price will remain when U.S. output doubles in a matter of months. The sole reason for entering the specialty chemical market over the biofuels market is the margins associated with the former, and those won't remain after output doubles. Only the fuel additive market has the necessary volume to absorb Gevo's planned output without reducing product margins.
    Oct 24, 2013. 05:41 PM | 1 Like Like |Link to Comment
  • Gevo's Run Of Bad Luck Continues [View article]
    Thanks for the comment. No, you are correct that Gevo never needs to sell its isobutanol as a fuel additive. That said, the fuel additive route represents the most direct path to revenues in the short-term (which is likely why so much of the company's documentation focuses on it). There are a number of challenges facing biobutanol's use in the specialty chemicals market. First, as I've mentioned elsewhere, Gevo will be forced to compete with entrenched producers that are operating nth-stage facilities and established networks.

    While these competitors do use fossil fuel feedstock, I am very skeptical that Gevo's process is truly less expensive. That isn't a knock against Gevo, but rather the recognition that (1) there is no commercial-scale production of biobutanol on which this number is based, (2) any techno-economic assessment that generates a point estimate is practically worthless as an investment tool (there are too many highly uncertain variables, particularly for an untested pathway, to make a point estimate even reasonably accurate), and (3) even if Gevo's process is cheap enough to overcome its competitors' state of learning, its customers over the next year will likely require a steep price discount to compensate for the threat of production disruptions. I'm afraid that I can't be as optimistic as you are regarding that company's short-term ability to compete against an entrenched industry in a small market with an untested biochemical pathway. Certainly, the failure of any next-gen biofuel producer to date to achieve its projected production costs (let alone minimum selling prices) suggests that some skepticism is warranted. Again, this isn't a knock against Gevo, but rather a recognition of the immense challenges facing the industry as a whole.

    The fuel additive market, on the other hand, is captive for producers such as Gevo. This is particularly true in the short-term, as time will be required in the specialty chemicals market to find customers willing to overlook the lengthy Luverne delay.

    As an aside, ICIS Chemical Business estimates isobutanol production in the U.S. to reach a mere 110,000 metric tons. That is a tiny market, particularly given Luverne's expected capacity of 55,000 metric tons per year.
    Oct 24, 2013. 04:16 PM | Likes Like |Link to Comment
  • Gevo's Run Of Bad Luck Continues [View article]
    Thanks for the comment. It is difficult to compare biobutanol with biodiesel production costs because only the latter is actually being produced at scale. There are a number of reasons to expect blenders to favor the latter, however:

    1. Biodiesel's higher energy content and maximum blend rate provides it with a greater implicit value to blenders;
    2. Biodiesel qualifies as both an advanced biofuel and a biomass-based diesel fuel, whereas biobutanol currently qualifies as neither;
    3. Biodiesel is an established pathway and steady online times are commonplace, whereas biobutanol has yet to succeed at scale. Experience from other novel pathway employers (such as KiOR) suggests that blenders will require discounted fuel from Gevo until it works through the quirks; and
    4. Biodiesel producers have developed trading relationships with blenders, whereas Gevo is developing its relationships from scratch with a damaged reputation from the lengthy Luverne delay.

    Nor does this consider competition with renewable diesel, which has substantial offline capacity that is expected to begin production in the coming months.
    Oct 24, 2013. 12:33 PM | 2 Likes Like |Link to Comment
  • Gevo's Run Of Bad Luck Continues [View article]
    First, please see the disclaimers at the beggining of the article. They are accurate, despite your insinuation to the contrary.

    Second, the article does discuss the alternative uses of isobutanol and why, despite its attractive price as a specialty chemical, this is a much harder market for the company to enter into than the biofuels market is.

    Third, the article does mention the current status of the Luverne restart and management's expected restart schedule.

    Fourth, the Texas facility is demo-scale and therefore of much less importance than the Luverne facility.

    Finally, I have yet to see an article on SA that considers Gevo in light of a reduced advanced biofuels volumetric mandate. Please correct me if I am wrong in this regard.

    I appreciate the comment, but kindly read the article in full before accusing me of providing incorrect information in the disclaimers section. Thank you.
    Oct 24, 2013. 12:26 PM | 1 Like Like |Link to Comment
  • The NYT Claims Big Banks Caused 'RINsanity' - Here's Why It Doesn't Matter [View article]
    Thanks for the comment. While Apple-esque page-views would certainly be nice, the fact that some investors (such as yourself) are following the topic is enough incentive to keep writing. Thanks for reading.
    Sep 26, 2013. 12:24 PM | Likes Like |Link to Comment
  • FutureFuel Is A Rare Biofuels And Bioproducts Cash Cow [View article]
    I imagine that they waited to sell the RINs generated in Q2 2012 until H2 2012. If so, then this timing issue will only show up on the quarterly returns.
    Sep 10, 2013. 05:03 PM | 1 Like Like |Link to Comment
  • FutureFuel Is A Rare Biofuels And Bioproducts Cash Cow [View article]
    One of the company's feedstocks is soybean oil, which also drives the prices of its other lipid feedstocks. The return of drought conditions has the potential to increase soybean oil prices (and thus the prices of its other feedstocks as well). While it's much too early to quantify its severity, soybean prices increased by 21% and FF's share price fell by 11% in the month following the onset of last summer's drought. Here in soybean country (Iowa) we've seen barely a drop of rain in the last month and yesterday's high was nearly 30 degrees above the average for early September. Again, it's too early to say that the crop will be substantially affected, but I don't expect biodiesel margins to expand much further as a result (SOYB is up 10% since early August).
    Sep 10, 2013. 05:01 PM | 1 Like Like |Link to Comment
  • FutureFuel Is A Rare Biofuels And Bioproducts Cash Cow [View article]
    The company reported $2.5 million in gross profit during H1 2013 directly resulting from the retroactive 2012 credit:

    Unfortunately, the company did not state how many RINs were internally-generated but not sold in Q2 2012 (very few do).
    Sep 10, 2013. 04:48 PM | Likes Like |Link to Comment
  • FutureFuel Is A Rare Biofuels And Bioproducts Cash Cow [View article]
    Thanks for the comment. Both events are only partially non-recurring. First, the retroactive extension of the blenders' credit gave producers two years' worth of credits in a single year. Normally this would be completely non-recurring. However, RIN prices are discounted by the value of the credit; i.e., RIN prices decrease when the credit increases and vice versa. This means that RIN prices will rise when the credit expires in 2014 to make up the difference. Further complicating matters is the fact that this is only true for the 2013 credit; because the 2012 credit is retroactive, it's simply a windfall profit. In other words, the 2012 credit, which was applied to 2013, is a non-recurring event while the 2013 credit was recurring in that RIN prices will increase after it expires. Hopefully that makes sense.

    FutureFuel generated RINs in Q2 2012 that it didn't sell during that quarter; it did sell the RINs that it generated in Q2 2013 during that quarter. In other words the YoY increase isn't entirely comparable since it could have sold its Q2 2012 RINs during that quarter (but didn't), in which case its Q2 2012 net income would have been higher than it was.
    Sep 9, 2013. 08:24 PM | Likes Like |Link to Comment
  • An Opaque RIN Market Hurts Investors And Companies Alike [View article]
    One of the biggest challenges in writing about the RFS2 on SA is doing so in only 2000-3000 words. Let me know which terms you have in mind and I'll do my best to explain them. As someone who learned about the RFS2 without the aid of a class or textbook, I'm all too familiar with the initial confusion that comes with learning about it.
    Aug 29, 2013. 10:58 AM | 2 Likes Like |Link to Comment
  • The Short Case For BioFuel Energy [View article]
    Large intraday price movements have been very common for this stock over the last year, as the article cautions.
    Aug 28, 2013. 04:52 PM | Likes Like |Link to Comment
  • Still No Signs Of Consumption Growth For Corn Ethanol [View article]
    Yes, farmer incomes have been offset by higher costs, as can be expected in a booming commodity market. And the least productive farmers will go under if prices decline too much, as is typical in the business cycle. However, to say that we're about to return to 1986, when corn prices hit $3.53/bu in real terms, is very premature when the futures markets are at $4.95/bu and spot prices are rising.
    Aug 27, 2013. 01:30 PM | Likes Like |Link to Comment
  • Still No Signs Of Consumption Growth For Corn Ethanol [View article]
    Briefly, biodiesel production can expand by 100% before it reaches its own blend wall. Ethanol production, on the other hand, appears to have reached a highwater mark. For more, see my recent focus articles on both companies.
    Aug 27, 2013. 12:45 PM | Likes Like |Link to Comment