Ethanol Companies take another hit… Flooding

Friday June 13, 2008 • Leave a Comment

Citigroup Pans Ethanol… On Flooding (VSE, BIOF, ADM)

The ethanol industry just keeps getting hammered by bad news. The news yesterday that Citigroup was downgrading the stocks is just another example (linked above). Yesterday I wrote about news I have received concerning the corn crop in Iowa and Minnesota and there is more flooding news today. The stocks downgraded by Citi took big hits, down at least 10%. BIOF lost a quarter of it’s value.

Today corn prices sit just north of $7 per bushel, a big jump from the $6 price that has been prevalent through the spring. However spot ethanol is pushing $2.70, up from $2.30 a couple of weeks ago, keeping the crush spread in positive territory. A $1.00 increase (or decrease) in corn price requires about a 35¢ change in ethanol prices to maintain the same gross profit margin.

The one item in the analyst (David Driscoll) report that I find especially interesting is his contention that up to 5 billion gallons of ethanol production could drop off the market in the next few months. I find this highly unlikely for several reasons. First, I assume he means annualized production, since the entire ethanol industry only produces about 850 million gallons per month. Second, 5 billion gallons is about 50% of the total annual ethanol capacity and the producers are currently having no problem selling every gallon they produce. Finally, the combination of clean air mandates and pricing advantage is pushing the country to 10% ethanol for all gas. Currently ethanol accounts for 7% of all the gas sold in the country and that amount is not going to drop.

The bottom line (my hypothesis) is that ethanol prices will rise and fall with corn prices to maintain some level of profitability for ethanol production. However, I do not believe that the market will realize this anytime soon and on-going bad crop news (I do not see any positive news this year for corn) will continue to hurt the ethanol stocks or at least prevent serious price gains.

Note: I have a long position in VSE.

2 sides to ethanol stock values

Tuesday June 10, 2008 • Leave a Comment

Ethanol Stocks Are Poised to Refuel - Barrons.com

The article linked above from Barrons give some reason why ethanol stocks should rebound in price. There are a couple of points I find interesting:

The stocks of the ethanol companies, VeraSun Energy (VSE: 4.21 -0.25 -5.61%) and Aventine Renewable (AVR: 4.56 -0.42 -8.43%) are trading at up to 30% less than the replacement cost of their ethanol plants.
Congress renewed the Farm Bill, giving a 45¢ (reduced from 51¢) per gallon blenders credit and keeping in place a 54¢ tariff on imported ethanol. These credits/tariffs are good through 2010.
Over 1/2 of the gas in the country is now 10% blended with ethanol and ethanol accounts for 7% of all of the “gasoline” sold.
Blending with ethanol is an economic plus, reducing the cost of gasoline by about 10-15¢ per gallon at current prices.
Ethanol companies remain profitable at $6.00 per bushel corn prices.

These are all positives for the ethanol companies, but the big worry now is the corn harvest and resulting prices. Ethanol production currently uses about 25% of the U.S. corn harvest and the recent weather events and harvest predictions are driving up corn prices, maybe to the point where ethanol production is no longer profitable. A short harvest in 2008 would come at the worst possible time for these companies. A note here: One option for farmers who have washed out crops is to leave the land fallow and take government crop insurance payments. Note a positive for fertilizer companies.

My analysis of ethanol producers is this: Ethanol prices and corn prices are now linked. The ethanol producers are the major consumers of corn and will reduce production if they cannot stay profitable, causing corn prices to fall. The markets sense this, so you will not see the ethanol crush spread move into negative territory for an extended period. Either corn or ethanol prices will correct, or both, to allow ethanol producers some level of profit.

The challenge for the ethanol companies and stock owners is what level of profits can these companies obtain. Improved efficiencies, finding new markets and/or products and eventual conversion to cellulosic production will determine to future value of these companies. At this time the stocks appear to be oversold, just on the value of their plants and could move up 20-30% on some good news. The next few quarterly earnings reports will show if they are reacting well to the current market conditions.

Note: I have a long position in VSE.

New Energy Finance - NEX - Weekly Review

Tuesday June 3, 2008 • Leave a Comment

Each Tuesday (usually) I post about the previous week’s results for the WilderHill Global New Energy Innovation Index symbol: NEX. The NEX is the bogey index for the PowerShares Global Clean Energy Fund (PBD: 25.85 -0.288 -1.10%) ETF. I think PBD is the best of the clean/renewable energy ETFs.

For the week ending 5/30 NEX gained 1.3%, slotting itself right between the NASDAQ at +1.9% and the S&P500, +0.9%. Power Storage was the leading sector up 7.1%. Every stock in the sector had a positive week led by Ultralife Batteries (ULBI: 9.87 -0.02 -0.20%). The trailing sector was Solar Energy, eeking out a 0.3% gain in spite of the 64.4% gain of German PV manufacturer Ersol Solar.

Here are the winners and losers from the index for last week:

NEX top gainers since 27/05/08
ErSol Solar ES6 +64.4%
Ultralife Batteries ULBI +32.3%
Echelon ELON +19.9%
Takuma 6013 +16.0%
EnviTec Biogas ETG +15.8%

NEX top losers since 27/05/08
Schmack Biogas SB1 -14.4%
Suntech Power STP -12.5%
EnerNOC ENOC -11.6%
Gushan Environmental GU -11.1%
JA Solar JASO -11.1%

Note: I do not have a position in any security listed.

New Energy Finance - NEX - Weekly Review

Tuesday May 27, 2008 • Leave a Comment

Each week I review the past week’s performance of the WilderHill Global New Energy Innovation Index (NEX). The index consists of approximately 90 renewable and clean energy companies from over 20 countries. The index can be invested in through the PowerShares Global Clean Energy Fund (PBD: 25.85 -0.288 -1.10%). All returns are for the week that ended last Friday.

The NEX finished the week down 2.1%, not quite as big a drop as the S&P 500 and NASDAQ, down 3.6% and 2.8%, respectively. The only winning sector was the one with mini-hydro and geothermal companies, called “renewable-other”. The renewable-others gained 1.8%. The energy efficiency sector dropped the farthest, down 4.7% and wind energy was dubious second down 2.9%.

Here are the best and worst individual stocks from the index for the week:

NEX top gainers since 20/05/08
LDk Solar LDK + 17.9%
Evergreen Solar ESLR + 12.6%
GS Yuasa 6674 + 10.9%
Sao Martinho SMT03 + 10.4%
Brasil Ecodiesel Industria e Comercio de Bioc ECOD3 + 9.1%

NEX top losers since 20/05/08
Medis Technologies MDTL - 20.3%
Epistar 2448 - 14.7%
Sanyo Electric 6764 - 14.2%
Zhejiang Yankon Group 600261 - 13.6%
Aventine Renewable Energy Holdings AVR - 12.6%

Note: I do not have a position in any security listed.

New Energy Finance - NEX - Week in Review

Tuesday May 20, 2008 • Leave a Comment

This is my weekly recap of the NEX index, the WilderHill Global New Energy Innovation Index. The NEX is tracked by the PowerShares Global Clean Energy Fund (PBD: 25.85 -0.288 -1.10%). The results posted here are for the week that ended last Friday (May 16).

The NEX had a pretty spiffy week, gaining 6.3%, compared with the S&P 500, up 1.6% and the NASDAQ, up 1.1%. Digging up my posts for the past weeks since the recent low in mid March, the index is up 20.7% since those lows. In the different sectors, solar let the way up 7.9% with wind power close behind at a positive 7.5%. Of the seven sectors, only one was in negative territory, with hydrogen and fuel cells sliding 1.2%.

Here are the top and bottom stocks from the index for the week:

NEX top gainers since 13/05/08
Aventine Renewable Energy Holdings AVR + 37.5%
Zoltek ZOLT + 24.4%
Gushan Environmental Energy GU + 22.8%
Hansen Transmission HSN + 22.2%
Novozymes A/S Series B NZYM’B + 22.0%

NEX top losers since 13/05/08
Verenium VRNM - 8.9%

Medis Technologies MDTL - 7.1%
EnviTec Biogas ETG - 6.7%
Zhejiang Yankon Group 600261 - 6.2%
Centrotec Sustainable CEV - 6.1%

Note: I currently do not have a position in any security listed.

New Energy Finance - NEX - Week in Review

Tuesday May 13, 2008 • Leave a Comment

If this is Tuesday, I must be writing about renewable energy. Time for my weekly update on last week’s results for the WilderHill New Energy Global Innovation Index of renewable energy companies-NEX. For investors, the NEX is tracked by the ETF: PowerShares Global Clean Energy Fund (PBD: 25.85 -0.288 -1.10%). The NEX offers a broad, global snapshot of renewable and clean energy companies.

For last week the NEX gained 2%, outgaining the NASDAQ at a +1% and the S&P500 which was off -0.3%. Solar energy came in as the top sector for the index, gaining 4%. Five of the 7 sectors in the index were positive. The only two negatives were renewable-other (mini-hydro and geothermal) and hydrogen/fuel cells losing 0.9% and 0.3%, respectively.

Here are the winners and losers from the index for last week:

NEX top gainers since 06/05/08
Energy Conversion Devices ENER + 54.7%
Capstone Turbine CPST + 16.8%
Centrotec Sustainable CEV + 14.0%
American Superconductor AMSC + 13.2%
Brasil Ecodiesel Industria e Comercio de Bioc ECOD3 + 12.2%

NEX top losers since 06/05/08
Aventine Renewable Energy Holdings AVR - 12.2%
Cree CREE - 7.0%
Conergy CGY - 6.5%
Byd Co 1211 - 6.4%
Verenium VRNM - 6.0%

Note: I currently do not have a position in any security listed.