Managing Editor

Ethanol's Short-Term Bottom

The HAI weekly podcast (www.hardassetsinvestor...) entitled "Gold, Oil and Ethanol" has the answer.

VeraSun’s (VSE) problems arose, in part, it hedged its feedstock corn near the top of the market.The long-term forward contracts locked in what turned out to be higher-than-market prices. Meantime, VeraSun’s unfettered competitors could buy their corn more cheaply. That left VeraSun's hopes riding on high oil prices (ethanol bids firm up in a tight oil market). The recession, however, knocked the wind out of the petroleum complex and the accompanying credit crunch limited the company’s ability to finance its working capital needs.


On Oct 30 09:55 AM ESQ118 wrote:

> vse bankruptcy immenient... why is that?

Ethanol's Short-Term Bottom

The four-cent figure is the current price of an ear of wholesale field corn. It was mentioned as a reference to the linked article in which a wag forecast that Pacific Ethanol's stock price could cheapen to the price of an ear of corn.

I can only conjecture whether oil companies want refiners' share prices to drop to pennies. I can only say with certainty than one pundit does.

Ethanol's Short-Term Bottom

The board crush is admittedly simplistic, but it's a spread that is at least representational and can be easily followed by retail investors without ready access to local cash market quotes and transportation rates.

Using the board crush is akin to viewing a sketch rather than a measured drawing: you get a depiction of the scene without having to wade through extraneous detail.

The weekly ethanol and corn prices, by the way, varies considerably depending upon your vantage point. Since 2006, it's only 45%, though year to date it's 84%.

Ethanol Stock as Cheap as an Ear of Corn?

ADM's not a one-trick pony like PEIX. In addition to corn processing, the company engages in agricultural services, including grain handling and storage, and oilseed processing. Ag services brought in less profit because of merchandising slowdowns and oilseed processing margins have narrowed. The poor performerance in these sectors negated any improvement in corn processing margins.