IsThisRight

Whatever Happened to Those Ethanol Companies?

The premise that 'revenue' is decreasing is a misunderstanding of the source of the revenue; and of margins.

While having their plants under construction, PEIX had the cash flow to buy and sell ethanol as a marketeer. Revenue and MARGINS from production was the driver of long-term value.

Re-starting the plants will again drive the value of the company; not the pass-thru dollars of ethanol reselling. Now mind-you, that this reselling business kept the management eating while the plants are in BK, but nevertheless, I rather take the production of fuel and WDG and the higher margins resulting, than judge the company on the top line dollar figures.

Pacific Ethanol: Market Growth and Increase in Production to the Rescue

This comment is one month later after the original post.

On Oct 2nd at an Oppenheimer Investment event, PEIX CEO stated that although they have increased prodcution, sales volume will be approx 50/50% in-house vs resales production.
So, just to correct point # 2 above, resales group is growing as fast as the new plant coming online in 2Q and 3Q... Good news that local markets are absorbing both production and resales gallons coming across from other companies.

Why I'm Selling Pacific Ethanol

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.

Are We at the Bottom of the Ethanol Barrel?

Everyone tries to find the rational of the ethanol stock price in the process of how ethanol is made and /or in how much comparative energy ( fuel gain) is created. All good arguments when there is a stable market and one is setting a comparable price to other stable fuel.
However, the bounce in these ethanol stocks can be best understood this way:
1/ In a "credit crunch" environment, the "squeeze" came from the speculators trying to trap the companies while their cash flow is constrained. The constraints are from the construction obligations and lately the price of corn.
NOW, since PEIX has shown that a) they can generate cash (EBITDA $12M) even at the high price of corn b) they are at the end of their construction plans (3Q08) and c) they finally have a CFO who can look under all the rocks of the financial contracts.... for all these facts, now Wall St can start pricing the stock on its relative value to oil/gas, without the 'squeeze' from the SHORT speculators.

Incidentally, except for ADM who has a lot of cash, most ethanol CORN plant construction will be done by 2008!!! The scarce about corn will be over soon.

Pacific Ethanol: 'Build-Ahead' is a Manufacturing Strategy

Build-ahead in a growth market works EVERYTIME!

Plus today, we learn that 1 of their plant had a few down days. This did not stop PEIX from showing 'better-than-expected' results, in a higher corn price environment.

My next prediction ( give it 60 days) is lower corn price - due mainly to WW supply from poorer countries around the world. An ear of corn is an ear of corn, when fed to the sows.

It's Now 'Official': Ethanol Is a Scam

Bravo, for the 'scam' story. Let's turn off ethanol and buy more oil, while we go wild on using more gasoline!

What is your alternative plan, Mr Perry, PH.D?

Pacific Ethanol Anticipates a Gloomy Q4

Q4 estimates numbers ( released so far) are NOT the whole story:
1/ Oregon was to come online in 1Q08 ( law was passed, plant was built...). So PEIX started puttin in storage in Oregon enough ethanol to serve a BRAND NEW MARKET. So their business incurred the cost of buying the corn, operating the plant and not getting the revenue until the grand opening of the market. This only happens once. And it is a GOOD THING.
2/ Since ethanol price in 1Q08 is higher than 4Q07, even if there was no new market, would you not like to hold back on $1.97/gallon and sell 3 months later for $2.20-$2.30/ gallon?

Come'on... everyone jumps on 4Q07 numbers without a single thought about market condition in 1Q08.

By the way, PEIX is not driving the U.S. SouthEast market supply. But other companies, with their eyes on FL, NC... will have to do the same thing ( build-ahead) in order to develop these NEW markets.

The Case Against Ethanol

You know that there is a bit on bashing when the easiest number to verify is wrong "Ethanol is at $2.00 when corn is at $6.00".
Ethanol ( as of 3/26 noon) is at $2.47 while corn is at $5.48.
A price difference of $3 versus $4 is a LOT.

Now for the other facts:
1/ "The corn used for ethanol could be used for feeding the poor" Question is : would the corn be grown at all if there is no ethanol sales to supplement oil-based gas?

2/ "Ethanol uses as much energy as the coal, oil and natural gas that it takes to make the ethanol".
Question is : why is it we do not turn coal or natural gas into gas?
So taking coal or natural gas energy and CONVERTING it to fuel to put in a car is ingenious!
3/ "The cost of subsidies pf $1-$1.38...'
a) My understanding is that the CORN ethanol subsidy is 50c a gallon. It goes to the REFINERS to kick start their investments to build the infrastructure to store/mix/distribute ethanol. Now this infrastructure is partly USABLE for cellulosic ethanol in the future.
b) the $1-$1.38 is to have the ethanol industry do the research/development/b... new plants for ethanol which will not depend on corn.

So first the author of the article blames the use of corn, then votes again approach to develop ethanol with other than corn.
OK, let's hear your POSITIVE proposal on how to solve the energy challenge. I will start first : I am all for conservation=driving less, buy smaller cars. Any other ideas to burn LESS OIL BASED GAS?

Pacific Ethanol: Juicy Details From Tuesday's 10-K

Very emotional when I saw Mr Greenberg’s article. Then I went to the SEC document.

A more subdue view of the status from the 10K reading:

1/ how come a plant which is producing ethanol is not fully completed? Seems like a trap was set for PEIX long ago and thru Lyles making a loan, PEIX was able to bridge to 2Q08. But yet had to break a few eggs ( eight euro loans instead of seven sounds like a trip wire that went boom!)

2/ $14M of loss in 4Q : since 6.6M is due previously Dec announced Madera plant delay- 4rd plant in construction and due to interest protection ( IF interest goes up on $170M debt, they are protected) so roughly there is another approx $8M of loss . read on…

3/ My guess ( again a guess) is that PEIX had to write down some of its inventory ( about 15m gallon by some 18c/gal ( $2.11 in 3Q to $1.97) so that is about $3M of the 8M… They got a higher price / gal than the industry ( good marketing and RISK MANAGEMENT)...read on

4/ Whatever else they produced and put in storage in 4Q might have cost them another $5-6M of cost without revenue.

Between # 3 and #4 the loss was about $8M.
when added to Number #2 this account for $14M.

NOW for the positive side of the 10K!!!
1/ THEY HAD TO PRODUCE AHEAD OF 1Q06 so they could stock pile for Oregon. That is called build-ahead!! Mr Greenberg, do you know that buil-ahead is an actual STRATEGY in manufacturing?

2/ Since they assume the risk of producing and storage, we know NOW in March 08 that the ethanol gal was selling for $2.2 to $2.30!!! (higher than the $1.97 price in 4Q). So what if their margins was lower for the 4Q period when they had to overproduce in order to build a whole new market in Oregon. I would have like to hear Mr Greenberg if the Oregon market was open for business, or Florida, or NC and they was no stockpiling ahead of time. Be real when you see a loss figure, Mr Greenberg. The number for a growing business is EASILY FORGIVEN IF IT IS AN INVESTMENT TURNED INTO CASH WITHIN 6 MONTHS. How shortsighted we become on Wall St where we go to bed on Friday and wake up on Monday witha whoops… I did it again(by Britney)!

3/ Lyles LLC agrees to buy 3M warrants to buy the shares at $7 per share at any time. AND paid for these warrants in advance. As an outsider looking in, I will take the same bet.

Mr Greenberg, you would never be able to really get your hands durty with dirt, corn, steel, trucks, pumps… You can only read a 10K

Ethanol: Three Developments to Watch

Which company makes the FOAM needed by the fire houses across the contry. As an investor, this is the type of info I need. Think for the summary of ethanol news.

Larry Kumins: Ethanol Use May Peak Soon

Going from 5% to 10% is Half-way there.... not two-third.

Why is it doubtful that the car industry and the consumer will not accept E85?