redbaron

Ethanol Producer CDS/Equity Relationship

Good thoughts, but first a question: How much do you spend to move a commodity like DDS, with it's very low valuation per pound (or per ton, as you might prefer), around the world, or around the country?

This question is at the economic heart of all the talk about biomass alternate energy, ethanol, algae energy, and all the other alternate fuel sources.

If at the end of all the research on this subject, actual economic realistic solutions are found to some of these currently researched proposal and ideas, and it cost more in terms of energy input to dry the material, and move it around the country than the actual energy recouped from the developed process, the economic reality is that you have developed a money losing process.

I have been involved in many of these economic models, and many of these research projects input the cost of ingredients as next to zero in the formula calculations. I understand that when we are throwing something away, one is tempted to rationalize the cost down to zero, or close to zero, but the reality is that when you begin to process this material by drying it, and moving it around the world, or country, or county, or wherever, the actual cost of the material is no longer zero.

As an example of this principle at work, consider the cost of moving corn from the corn belt, to another location outside of the corn belt. When a former employer built a feed plant in southern GA and found the local corn supply to be less than satisfactory (due to aflatoxin content) for animal feed use, corn had to be hauled from the Ohio River region, all the way to southern GA. That transportation added close to a dollar a bushel to the corn (at that time), and substantially increased the cost of corn in the feed formulas. The same principle is at work with some of the recently constructed ethanol plants that were built away from the corn belt and have already been shut down.

Again, how much do you spend to move something that is essentially worthless? Can you afford to move it around the world?

Food Processing Sector: Great Place to Hide During Correction

ADM's ethanol business is a concern to me, as everyone in that sector seems to be losing money. ADM has deeper pockets than most, but their recent earning were poor. Apparently, no one can make money on ethanol, even when corn so much cheaper this year than last, and ADM is the biggest in ethanol. I owned it when it was cheaper, but have no sold it.

Biofuel Production Will Continue to Grow

Not all ethanol producers are going bankrupt, but several have. But if this is such a great idea, why don't we remove the subsidies and see what happens? I think we all know the answer.

I have verified lower gas mileage in my car when using ethanol, like Acrimonious has shown in his car. Try checking your miles per gallon when filling up in a town here in the midwest close to an ethanol plant, such as POET's plants. POET apparently promotes a little extra ethanol usage in local stations close to their plants, and I can see my mileage drop significantly when using gasoline that is supposed to be limited to 10% ethanol. I don't know how much extra they get locals to use in the towns where they have plants, but my mpg's dropped significantly when I bought gas in Laddonia, MO (POET has a ethanol plant there). I can get 24-25 miles per gallon normally, and I get only 18-19 mpg when I buy gas in Laddonia.

Preview from Europe: Equities Rebound as Tech Chips In

ADM is not a chip stock, and it was not up 11% on St. Pats Day. Perhaps you meant AMD, instead of ADM, but you did say 'Archer Daniels'. Who does your proof reading?

ADM Earnings Are a Shareholder's Dream

Something doesn't compute here. Obama wants to increase bio-fuel production, but ADM reports just yesterday that 22% of US ethanol production has been shut-down. At least one ethanol producer has declared bankruptcy, and another couple are close. And yet, ADM, the country's biggest ethanol producer reports increased earnings. ADM has lots of diversification, and one can only conclude that the increased earnings is not from ethanol. However, if ethanol production is increased, and ADM plays a role in that increase, one has to wonder if that is a positive, or a negative, for ADM. I wish the author would explain this 'problem'.

At Least Five Agricultural Stocks with Upside

Donzelion: The large land owners here in the midwest that I know personally, are nearly all Republicans, and they have benefited greatly from subsidies of the last decade or so. Whether or not ag subsidies could, or would actually change, is of course speculation, but then all of this is really specualtion.

My basic point is just that any change in subsidies will ultimately affect any and all ag. companies very significantly, and with a new administration, anything is possible.

At Least Five Agricultural Stocks with Upside

'The election of a Democratic President also bodes well. Not only does this give the Democrats the Presidency, it also secures legislation as there will be no veto.'

And what happens is the Dems decide to stop subsidies to agriculture, with a veto proof administration? I own ADM and some others in this area as well, but am concerned about this possibility. Without subsidies, everything changes here.

The Future of Ethanol

John, please define the term 'Sweet Sorghum'. Is this the tall (6ft.) 'cane' I saw being grown for cattle feed in Kansas when I grew up in the 1940-50's? Or is this the shorter version, 'Milo', grown all over the western Midwest for grain? The terminology is causing some confusion in my mind. Many thanks!

I worked in the feed industry for several decades, and if I don't understand the terminology, there must be many others in the same category.

Archer Daniels Midland Crushes Estimates

Well said, Todd, and I would also add that it is one of the few surviving American feed manufacturing companies. Why is that important? Feed manufacturing is important to ADM because it gives it an outlet for all of the by-products from the huge volume of grain processing the company is involved in. Without feed manufacturing as an outlet for these by-products, ADM would be paying for disposal of these by-products, and these disposal costs would be very large. Using these by-products in feed, not only utilizes them as a valuable commodity, it also avoids these huge disposal costs.

Growth in Corn Harvest Means Good News for Ethanol Producers

You want some comment, Shenadoah, so I will oblige. Corn is still at $5, and most of the ethanol plants were built when corn was at $2. A good friend who has contacts at local ethanol plants told me that there was no way ethanol was going to work if corn stayed at $5, and then it went to $8, and is now back to $5. Sure, $5 is better than $8, but that just means the losses will be smaller. And what if McCain is elected, and the mandate goes away completely? What then?

I own ADM also, but if the ethanol mandates and subsidies go away, I will be a seller.

'Hey-Where are all those ignorant negative posts which usually follow any article on ethanol?' Now there is a real inteligent comment (not), from someone with a very non-open mind. Grow up! No one has all the answers, but those with as closed a mind as this, will never learn anything new.

Is the Ethanol Mandate Likely to be Repealed?

I have been involved in research on feed and grain products since 1964, and I give your review of the topic a 'B' on overall content and fairness (the article is not biased, IMHO).

Where you fall short is buying into the concept of cellulosic ethanol, as that technology has not been developed, and may never be developed. If you had gone back to the 1970's, and looked at this subject then, you would have seen similar research projects on-going to convert rejected crop residue to ethanol, and those projects were not successful either, and eventually dropped. Developing the bugs to do the conversion, failed.

I predict a similar outcome this time, and like you said, even if it can be developed, the costs are going to be huge. The crop residue from corn is one feedstock being proposed, as it currently is being just left in the field (another is switch grass). How much can one expend in the way of fuels and time in collecting and hauling these very nearly wothless 'crops'? For instance, could one spend days collecting these so-called crops, then hauling them hundreds of miles to a processing plant? The economics simply do not work out, and that is if the process can be developed. I would add, if it could have been developed, after decades of work, it would have already be available. And that does not address your point of the lesser energy output from ethanol, which is a major problem.

Why not just take the subsidy off ethanol and see what happens? If it such a great idea, it will fly on it's own. At the same time, take off the tarriff on imported ethanol, and let Brazilian ethanol come into this country without the 51 cent tax, which would allow it to compete as well. One wouldn't have to completely repeal the original mandate, just take those two steps and give it a chance to survive on it's own. If it works, leave it in. We are going to need all the energy we can get. And if it doesn't work, it will die a silent death, and no one will even notice.

Windfall Profits for Big Food: Where's The Outrage?

make that..........'when we are going to need all the big-oil supplies'.......note to self.....'proof read before posting'.

Windfall Profits for Big Food: Where's The Outrage?

Great article, and spot-on exactly correct. Our energy future is going to expand beyond oil and natural gas, but not in time to do anything meaningful about near-term future consumption of those products. Why beat up on 'big-oil' so severely, when we are going to near all the 'big-oil' supplies we can muster up. And at the same time, ignore 'big-Ag'.

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

While it is true that the grain ingredient cost of a box of cereal is just a tiny portion of the purchase price, this argument ignores the effect of the increase in transportation costs, that subsidizing ethanol has helped produce. By hanging our hat on the ethanol hook, we have gone in the wrong direction, and contributed hugely to the increase in transportation costs.......just as we did in the 1970-80's. We tried this dance once, and it didn't work then. Why were we not intelligent enough to realize that unless there was some significant new technology to contribute to lowering overall costs, this was doomed to failure again? The first commentor, 'pk de cville', said it all, and best. It is now time to use 'intelligence based' initiative to start to solve this problem.