24/7 Wall St. » PEIX

US Ethanol Subsidy is History (ADM, VLO, PEIX, GPRE, CZZ, RDS-A)

Paul Ausick — Fri, 30 Dec 2011 13:00:36 +0000

After 30 years of payments to farmers and blenders, the federal subsidy on corn-based ethanol expired when Congress adjourned last week without taking any action to renew the payments. A cynic might say that this Congress has finally accomplished something by doing what it has done best — nothing. The subsidy cost US taxpayers about $6 billion annually.

The lack of Congressional action ends the $0.45/gallon blender’s credit on US-produced ethanol and the $0.54/gallon tariff on imported ethanol. US ethanol producers Archer Daniels Midland Co. (NYSE: ADM), Valero Energy Corp. (NYSE: VLO), Pacific Ethanol Inc. (NASDAQ: PEIX), and Green Plains Renewable Energy Inc. (NASDAQ: GPRE) had already seen the writing on the wall and are not likely to feel any appreciable pain from the end of the subsidies. Brazilian cane-based ethanol maker Cosan Ltd. (NYSE: CZZ) and its partner, Royal Dutch Shell plc (NYSE: RDS-A) have also been making a profit exporting ethanol to the US in spite of the tariff.

The end of the subsidy does not end the federal mandate on the use of alternative fuels for transportation. Earlier this week we looked at the nonsensical mandate adopted by Congress in 2007 that calls for 200 million gallons of alternative fuels to blended with gasoline in 2012. Virtually every drop will come from ethanol, and the producers really don’t need a subsidy on top of a mandate to make a profit. The mandate alone will do quite nicely, thank you very much.

Paul Ausick

Filed under: Alternative Energy, Green Biz, Oil & Gas, Politics, Regulation Tagged: ADM, CZZ, GPRE, PEIX, RDS-A, VLO

New Biofuels Fail to Meet Government-Mandated Quantities (CDXS, AMYR, GEVO, SZYM, KIOR, ADM, VLO, PEIX)

Paul Ausick — Wed, 28 Dec 2011 14:49:11 +0000

Back in the heady days of 2007, the U.S. Congress established mandates for the amount of cellulosic ethanol and other biofuels to be used in the nation’s transportation fuel supply. Cellulosic ethanol and fuels based on algae are made from nonedible biomass, and thus avoid the criticism of replacing food with fuel. The congressional mandates were very aggressive, calling for 100 million gallons of cellulosic ethanol by 2009, 250 million gallons by 2010, and 500 million gallons by 2013. By 2022, U.S. transportation fuel is supposed to include 16 billion gallons of cellulosic ethanol.

In 2010, the mandate was lowered for that year to 6.5 million gallons and for 2012, the mandate set by the U.S. Environmental Protection Agency has been set at 8.5 million gallons. Companies like Codexis Inc. (NASDAQ: CDXS), Amyris Inc. (NASDAQ: AMRS), Gevo Inc. (NASDAQ: GEVO), Solazyme Inc. (NASDAQ: SZYM) and Kior Corp. (NASDAQ: KIOR) have so far failed to reach production levels anywhere near mandated levels. Traditional corn-ethanol makers like Archer Daniels Midland Co. (NYSE: ADM), Valero Energy Corp. (NYSE: VLO) and Pacific Ethanol Inc. (NASDAQ: PEIX) continue to supply the vast majority of nonpetroleum based fuels.

Refiners are required either to use cellulosic ethanol or to pay $1.20/gallon for the privilege of not using it. Because so little is available, refiners end up paying for something they cannot buy at any price.

Most biofuels makers have turned to producing specialty chemicals for the cosmetics and pharmaceuticals industries in order to make some revenue. Truth be told, a gallon of a cosmetic component is far more costly than a gallon of cellulosic ethanol, so these companies continue to work on developing substitute chemicals. The payback from these is more certain and nearer in time than is trying to scale up manufacturing of biofuels and facing uncertain political and distribution issues.

To show how hard things have been, the share price of many pure-play stocks pretty much sums it all up:

Codexis trades at $5.53 and its 52-week trading range is $3.91 to $12.24.
Amyris trades at $11.16 and its 52-week trading range is $9.90 to $33.99.
Gevo trades at $5.59 and its 52-week trading range is $5.18 to $26.36.
Solazyme trades at $11.27 and its 52-week trading range is $7.68 to $27.47.
KiOR trades at $9.31 and its 52-week trading range is $8.88 to $23.85.

Paul Ausick

Filed under: Alternative Energy, Green Biz, Oil & Gas, Politics Tagged: ADM, AMRS, AMYR, CDXS, GEVO, KIOR, PEIX, SZYM, VLO

24/7 Wall St. Closing Bell (CSCO, FSLR, SI, BRCM, AFFY, DFS, FDX, PIR, SCHL, WGO, SONO, NVLS, GEVO, ZOLL, BPAX, PEIX)

Paul Ausick — Thu, 15 Dec 2011 21:05:03 +0000

US markets opened fast this morning, up nearly 1% in the first hour of trading before giving most of the gain back by mid-morning and then wandering around a gain of less than 0.5% for the rest of the day. Better manufacturing data from Europe, and solid manufacturing gains in the US helped the market in the early going. The US dollar was down against the euro, the yen, and the British pound. Crude oil prices fell today, with WTI down more than -1.5% at $93.44/barrel and Brent down about -0.9% at $103.33. Gold continued its slide as well today, down more than -1% at $1,568.80/ounce.

The unofficial closing bells put the DJIA up nearly 47 points to 11,869.95 (0.39%), the NASDAQ rose nearly 2 points (0.07%) to 2,541.01, and the S&P 500 rose 0.33% or about 4 points to 1,215.83.

There were several analyst upgrades and downgrades today, including Cisco Systems Inc. (NASDAQ: CSCO) started as ‘buy’ at Nomura. Other ratings actions today include First Solar Inc. (NASDAQ: FSLR) cut from ‘buy’ to ‘neutral’ at R.W. Baird; Siemens AG (NYSE: SI) cut from ‘buy’ to ‘neutral’ at Goldman Sachs; Broadcom Corp. (NASDAQ: BRCM) raised to ‘outperform’ at Wells Fargo; and Affymetrix Inc. (NASDAQ: AFFY) raised from ‘neutral’ to ‘buy’ at Goldman Sachs.

Here are today’s post-earnings news reactions with prices during the last half-hour of trading: Discover Financial Services (NYSE: DFS) is down -3.2% at $23.06; FedEx Corp. (NYSE: FDX) is up almost 8% at $83.45; Pier 1 Imports, Inc. (NYSE: PIR) is up 0.23% at $13.17; Scholastic Corp. (NASDAQ: SCHL) is up more than 4% at $26.73; and Winnebago Industries, Inc. (NYSE: WGO) is down -0.15% at $6.80.

Other standouts from today include the following stocks:

SonoSite Inc. (NASDAQ: SONO) is up more than 27% at $53.68, a new 52-week high. The ultrasound device maker has been acquired by Japan’s Fujifilm Holdings Inc. for $54/share, or about $995 million. Our coverage is here.

Novellus Systems, Inc. (NASDAQ: NVLS) is up more than 17% at $40.68, after posting a new 52-week high of $42.50 earlier today. The semiconductor equipment maker is being acquired by Lam Research Corp. (NASDAQ: LRCX) for $3.3 billion in an all-stock deal. More coverage here.

Gevo Inc. (NASDAQ: GEVO) is up more than 13.5% at $6.41. The biofuel and chemical company signed an agreement with The Coca-Cola Co. (NYSE: KO) to develop a new bio-derived plastic bottle.

Zoll Medical Corp. (NASDAQ: ZOLL) is up more than 29% at $60.47, after posting a new 52-week high earlier today of $63.86. The medical device maker’s wearable defibrillator has been re-affirmed for Medicare coverage.

BioSante Pharmaceuticals, Inc. (NASDAQ: BPAX) is down more than -77% at $0.48, after posting a new 52-week low of $0.46 earlier today. The biopharmaceutical company reported that its experimental drug to enhance libido in post-menopausal women failed a late-stage trial.

Pacific Ethanol Inc. (NASDAQ: PEIX) is down nearly -18% at $0.87. The ethanol maker announced the completion of a sale of about 12.6 million shares and warrants to 11 private investors for just over $8 million in cash.

Stay tuned for Friday. Chicago Federal Reserve Bank President Charles Evans and Dallas Federal Reserve Bank President Richard Fisher are speaking tomorrow. Here is another other noteworthy event on the schedule (all times Eastern):

8:30 a.m. – Consumer price index for November released

Paul Ausick

Filed under: HI/LOW, Market Close Tagged: AFFY, BPAX, BRCM, CSCO, DFS, FDX, FSLR, GEVO, NVLS, PEIX, PIR, SCHL, SI, SONO, WGO, ZOLL

24/7 Wall St. Closing Bell (GOOG, IAG, ERTS, STX, ONXX, CRZO, GIL, BKS, LULU, ISLE, KR, TLB, PEIX, LAVA, CLWR, STNG, HOVNP)

Paul Ausick — Thu, 01 Dec 2011 21:05:52 +0000

Equity markets opened slightly lower this morning, following yesterday’s big share price increases. For most of the day stocks traded slightly lower, although they have moved to a very slight gain in the final hour of trading. China’s purchasing managers index was weaker than expected, which is probably the reason for the slow start this morning, and then new US unemployment claims were higher than expected adding more pressure on prices. The dollar has traded weaker relative to the euro, but strengthened against the yen. Crude oil is trading down marginally at $100.18/barrel and gold is also down slightly at $1,743.870/ounce.

The unofficial closing bells put the DJIA down more than 25 points to 12,020.48 (-0.21%), the NASDAQ rose nearly 6 points (0.22%) to 2,626.20, and the S&P 500 fell -0.19% or more than 2 points to 1,244.58.

There were several analyst upgrades and downgrades today, including Google Inc. (NASDAQ: GOOG) raised to ‘buy’ at Citigroup. Other ratings action included IAMGOLD Corp. (NYSE: IAG) started as ‘outperform’ with a $25 price target at Credit Suisse; Electronic Arts Inc. (NASDAQ: ERTS) raised from ‘neutral’ to ‘buy’ at Citigroup; Seagate Technology PLC (NYSE: STX) raised to ‘buy’ at Argus; Onyx Pharmaceuticals Inc. (NASDAQ: ONXX) cut from ‘buy’ to ‘neutral’ at BofA/Merrill Lynch; and Carrizo Oil & Gas (NASDAQ: CRZO) reiterated ‘buy’ with a new price target of $49 at Canaccord Genuity.

Here are today’s big post-earnings news reactions with prices during the last half-hour of trading: Gildan Activewear Inc. (NYSE: GIL) is down -30.8% at $16.53, after setting a new 52-week low of $16.52; Barnes & Noble, Inc. (NYSE: BKS) is down -16.9% at $14.50; Lululemon Athletica Inc. (NASDAQ: LULU) is down -4.8% at $47.34; Isle of Capri Casinos, Inc. (NASDAQ: ISLE) is down -8.5% at $4.51; The Kroger Co. (NYSE: KR) is up 1% at $23.41; and The Talbot’s Inc. (NYSE: TLB) is down -17.1% at $1.65, after posting a new 52-week low of $1.63. We have more details on Lululemon’s earnings and on the November sales reports from a number of retailers, including Talbot’s.

Several other standouts from today are as follows…

Pacific Ethanol Inc. (NASDAQ: PEIX) is up 26.7% at $1.33. The ethanol maker has regained compliance with Nasdaq listing requirements and has increased ownership of its four ethanol production plants to 27%.

Magma Design Automation Inc. (NASDAQ: LAVA) is up more than 25% at $7.16. The design automation firm has agreed to be acquired by Synopsys Inc. (NASDAQ: SNPS) for $7.35/share.

Clearwire Corp. (NASDAQ: CLWR) is up more than 17% at $2.09. The wireless broadband provider received a $1.6 billion investment from its majority owner Sprint Nextel Corp. (NYSE: S) that will enable Clearwire to meet its $237 million debt payment. We have more details here.

Scorpio Tankers Inc. (NYSE: STNG) are down more than -20% at $5.31. The Monaco-based petroleum shipping company priced a secondary offering this morning at $5.50/share.

Hovnanian Enterprises Inc. (NASDAQ: HOVNP) is down more than -14% at $1.31. The homebuilder has been batted around for nearly a year now, and even improving news on construction spending can’t stop the slide.

Stay tuned for Friday. We have noted speeches due from Dallas Federal Reserve President Richard Fisher, Philadelphia Fed President Charles Plosser, and Boston Fed President Eric Rosengren. Here’s another noteworthy event scheduled for tomorrow (all times Eastern):

8:30 a.m. – Non-farm payroll report

Paul Ausick

Filed under: HI/LOW, Market Close Tagged: BKS, CLWR, CRZO, ERTS, GIL, GOOG, HOVNP, IAG, ISLE, KR, LAVA, LULU, ONXX, PEIX, STNG, STX, TLB

24/7 Wall St. Closing Bell (DELL, DKS, RIMM, ATVI, TIBX, ZOOM, ANF, TGT, SPB, VLO, WNR, MPC, NG, PEIX, ASYS, UNIS)

Paul Ausick — Wed, 16 Nov 2011 21:08:49 +0000

The markets opened lower this morning and not until mid-afternoon were equities able to put a mark above yesterday’s close. European stocks traded mixed all day, and that coupled with rising crude prices could have held the markets in check. Crude prices are upmore than 3% so far today, at about $102.55 for WTI crude. The good news is that the spread between WTI and Brent has narrowed to $9/barrel. Because US gasoline prices are now pegged to Brent, pump prices could rise only moderately as WTI continues to close the gap. The dollar is a bit stronger today as well, leading to lower prices among commodities, with wheat off by about -2.5%.The unofficial closing bells put the DJIA down more than 190 points to 11,905.19 (-1.57%), the NASDAQ fell more than 46 points (-1.73%) to 2,639.61, and the S&P 500 fell about -1.66% or nearly 21 points to 1,236.92.There were several analyst upgrades and downgrades today, including Dell Inc. (NASDAQ: DELL), which was maintained at ‘underperform’ at Credit Suisse and reiterated at ‘buy’ with a $22 price target at Argus. Other action included Dick’s Sporting Goods, Inc. (NYSE: DKS) added to the Conviction Buy list at Goldman Sachs; Research in Motion Ltd. (NASDAQ: RIMM) raised to ‘neutral’ at Goldman Sachs; Activision Blizzard Inc. (NASDAQ: ATVI) reiterated as ‘buy’ with an $18 price target at Argus; and TIBCO Software Inc. (NASDAQ: TIBX) started with ‘market perform’ by BMO Capital and as ‘outperform’ at JMP Securities.Here are today’s big post-earnings news reactions with prices during the last half-hour of trading: Dell Inc. is down about -3%, at $15.16; Zoom Technologies Inc. (NASDAQ: ZOOM) is down about -19%, at $1.39; Abercrombie & Fitch Co. (NYSE: ANF) is down about -14.7%, at $47.50; Target Corp. (NYSE: TGT) is down about -0.1%, at $53.11; and Spectrum Brands Holdings Inc. (NYSE: SPB) is down -7.8%, at $23.39. We covered Target, Spectrum, and A&F earnings earlier today.

Several other standouts from today are as follows…

Valero Energy Corp. (NYSE: VLO) is down nearly -9%, at $22.67. Valero and other refiners’ stocks got hit with a narrowing of the gap between WTI and Brent crudes, as well as an announcement by Enbridge Inc. (NYSE: ENB) that it is buying a 50% stake in the Seaway pipeline from ConocoPhillips Corp. (NYSE: COP) and reversing the pipeline’s flow to carry 150,000 barrels/day of crude from Cushing, Oklahoma, to the Gulf Coast.

Western Refining Inc. (NYSE: WNR) is down more than -13%, at $13.47, and Marathon Petroleum Corp. (NYSE: MPC) is down about -11%, at $32.91.

Novagold Resources Inc. (AMEX: NG) is up more than 23.5%, at $10-.89. The company has appointed a new CEO to start in January and also announced that it would spin-off a subsidiary, NovaCopper, to current NovaGold shareholders.

Pacific Ethanol Inc. (NASDAQ: PEIX) is up more than 3%, at $1.37. The company announced that it has fully retired $35 million in senior convertible notes.

Amtech Systems Inc. (NASDAQ: ASYS) is down more than -17%, at $8.59. The company issued a statement that it expects to post $21-$23 million in sales for the third quarter, where analysts had been expecting revenue of $50 million.

Unilife Corp. (NASDAQ: UNIS) is down about -12.5%, at $4.17. The company priced a secondary stock offering of 8.25 million shares at $4.35, well below yesterday’s closing price of $4.76.

Stay tuned for Thursday. Cleveland Federal Reserve Bank president Sandra Pianalto and New York Fed president William Dudley are giving speeches tomorrow afternoon. Here’s a list of other noteworthy events (all times Eastern):

8:30 a.m. – Housing starts
8:30 a.m. – Initial unemployment benefits claims
10.00 a.m. – Philadelphia Federal Reserve Bank’s October business outlook survey
10:00 a.m. – E-commerce retail sales
10:30 a.m. – EIA weekly natural gas status report
1:00 p.m. – 10-year TIPS auction
4:30 p.m. – Federal Reserve balance sheet and money supply report

Paul Ausick

Filed under: HI/LOW, Market Close Tagged: ANF, ASYS, ATVI, DELL, DKS, MPC, NG, PEIX, RIMM, SPB, TGT, TIBX, UNIS, VLO, WNR, ZOOM

24/7 Wall St. Closing Bell (A, CRM, AAP, LOW, ALIM, WMT, BZH, COV, DKS, TJX, SKS, MGI, PEIX, NLST, FFN, MTOR)

Paul Ausick — Tue, 15 Nov 2011 21:04:55 +0000

Stocks opened lower this morning and stayed lower for nearly the entire first half of the day, with buyers most likely waiting to see what would happen with Italian bond rates. The bonds ended the day at a yield slightly above 7%, which was probably not as bad as expected. A solid, if modest, gain took hold in the early afternoon as the October retail sales report turned in a better-than-expected rise. Producer prices were lower, though core inflation was flat, and the Empire State manufacturing index was higher. Crude oil is up nearly 1.5%, at $99.50/barrel, and the euro has given up an early gain against the dollar.

The unofficial closing bells put the DJIA up more than 17 points to 12,096.39 (0.14%), the NASDAQ rose nearly 29 points (1.09%) to 2,686.20, and the S&P 500 rose 0.48% or more than 6 points to 1,257.80.

There were several analyst upgrades and downgrades today, including Agilent Technologies, Inc. (NYSE: A) raised to ‘buy’ at BofA/ML. Other action included Salesforce.com (NYSE: CRM) reiterated at ‘neutral’ by Argus; Advance Auto Parts, Inc. (NYSE: AAP) cut to ‘hold’ at Argus; Lowe’s Companies Inc. (NYSE: LOW) target raised from $25 to $28 at Argus; Alimera Sciences Inc. (NASDAQ: ALIM) cut to ‘neutral’ with a $2 target at Credit Suisse.

Here are today’s big post-earnings news reactions with prices during the last half-hour of trading: Wal-Mart Stores, Inc. (NYSE: WMT) is down about -2.25%, at $57.57; Beazer USA Homes Inc. (NYSE: BZH) is down about -0.5%, at $2.21; Covidien plc (NYSE: COV) is up nearly 2.5%, at $48.44; Dick’s Sporting Goods, Inc. (NYSE: DKS) is up nearly 5.5%, at $41.73; TJX Companies, Inc. (NYSE: TJX) is up about 1% at $61.16; and Saks, Inc. (NYSE: SKS) is up 2.5%, at $10.46. For a more detailed look at today’s retail earnings, see our earlier story.

Several other standouts from today are as follows…

Moneygram International, Inc. (NYSE: MGI) is up about 616%, at $18.68. The company announced a 1-for-8 reverse stock split this morning, shrinking the number of outstanding shares from 1.3 billion to 162.5 million. The stock closed yesterday at $2.61, and posted a new 52-week high this morning of $19.61.

Pacific Ethanol Inc. (NASDAQ: PEIX) is up nearly 30%, at $1.31. There is no direct news from the company, but the price jump is very likely related to an announcement yesterday from Archer Daniels Midland Co. (NYSE: ADM) that it was building a new plant in Canada that would double its annual production of ethanol.

Netlist, Inc. (NASDAQ: NLST) is up more than 24%, at $2.92. The company has signed deals with both IBM Corp. (NYSE: IBM) and Hewlett-Packard Co. (NYSE: HPQ) under which Netlist’s cloud memory product undergo qualification testing for use with the two companies’ servers.

FriendFinder Networks, Inc. (NASDAQ: FFN) is down more than -20%, at $1.50, after posting a new 52-week low of $1.42. The company has been notified of a class-action lawsuit charging that it made false statements related the number of shares of stock subject to the 180-day lock-up period following the company’s IPO last May.

Meritor, Inc. (NYSE: MTOR) is down more than -17%, at $6.58. The company reported solid earnings today, but cut next year’s revenue guidance by about 10%.

Stay tuned for Wednesday. Richmond Federal Reserve Bank president Jeffrey Lacker and Boston Fed president Eric Rosengren are giving speeches tomorrow. Here’s a list of other noteworthy events (all times Eastern):

7:00 a.m. – Mortgage purchase applications
8:30 a.m. – Consumer price index
9:15 a.m. – Federal Reserve industrial production index
10:00 a.m. – Housing market index
10:30 a.m. – EIA weekly petroleum status report

Paul Ausick

Filed under: Analyst Calls, HI/LOW, Market Close Tagged: A, AAP, ALIM, BZH, COV, CRM, DKS, FFN, LOW, MGI, MTOR, NLST, PEIX, SKS, TJX, WMT

Is There Really Upside in Biofuels Stocks? (ADM, VLO, GPRE, PEIX, SZYM, GEVO, AMRS, CDXS, KIOR)

Paul Ausick — Mon, 07 Nov 2011 19:02:56 +0000

Our series on expected upside in stock prices continues today with a look at the biofuels sector. What you are about to see are numbers that, for the most part, defy gravity. With just two of these companies paying a dividend and only three with positive expected earnings, investors in most of these stocks have to ask themselves if they’re feeling lucky today.

The companies we’ve looked at include ethanol makers Archer Daniels Midland Co. (NYSE: ADM), Valero Energy Corp. (NYSE: VLO), Green Plains Renewable Energy Inc. (NASDAQ: GPRE), and Pacific Ethanol Inc. (NASDAQ: PEIX). Biofuel and biodiesel makers include Solazyme, Inc. (NASDAQ: SZYM), Gevo, Inc. (NASDAQ: GEVO), Amyris Biotechnologies Inc. (NASDAQ: AMRS), Codexis, Inc. (NASDAQ: CDXS), and Kior Corp. (NASDAQ: KIOR).

To be fair, ADM and Valero don’t depend exclusively on ethanol production for revenues and profits, whereas the others do depend exclusively on their biotech products, even if the products are not used exclusively for fuel. Even the ethanol makers that face a loss of their current $0.45/gallon federal subsidy at the end of this year could feel a pinch in revenue and profit. Current US demand for ethanol is being exceeded by ethanol producers, and unless service stations begin widely to adopt the recently approved 15% ethanol blend, there’s not much reason to believe demand for ethanol will grow.

As for the bio-fuel makers, their problem is scale. And given the recent government losses trying to help Solyndra, Evergreen Solar, and Beacon Power reach scale, prospects for government investment in scaling up bio-fuels are dim at best. The best thing that could happen to any of these bio-fuel makers is to be acquired by either a big ethanol maker or an integrated oil company. No such announcements are rumored, however.

All data from Yahoo! Finance, and current prices were gathered just before noon today.

Archer Daniels Midland Co. (NYSE: ADM) has a median target price of $33.00 from 13 brokers. Shares are trading today at $29.01, for an implied gain of $3.99, or 14%. ADM’s forward P/E is 8.61 and the company pays a dividend yield of 2.2%. The stock’s 52-week trading range is $23.69-$38.02, and at today’s price that’s about 22% above its 52-week low and 24% below the 52-week high. ADM was included in our review of food processors just last Thursday, and since then it’s target price has fallen by -$2/share. The drop is probably more related to ADM’s shrinking margins in other parts of its business. Lower corn prices will have a bigger negative impact on the company’s trading business than they will on ADM’s ethanol business.

Valero Energy Corp. (NYSE: VLO) has a median target price of $31.00 from 14 brokers. Shares are trading today at $25.65, for an implied gain of $5.35, or 21%. Valero’s forward P/E is 6.01 and the company pays a dividend yield of 2.3%. The stock’s 52-week trading range is $16.40-$31.12, and at today’s price that’s about 56% above its 52-week low and 18% below the 52-week high. The market for crude oil is currently wobbling between contango and backwardation. What that means for a refiner like Valero is that if contango continues, crude prices will be higher in the future and refiners will get a boost due to the differential between WTI and Brent. If, as today, backwardation takes hold, and futures prices for crude are lower than they are today, refiner margins will be squeezed as the price spread disappears. Crude prices are far more important to Valero than ethanol prices, particularly once the subsidy disappears.

Green Plains Renewable Energy Inc. (NASDAQ: GPRE) has a median target price of $14.27 from 6 brokers. Shares are trading today at $10.18, for an implied gain of $4.09, or 40%. Green Plains’ forward P/E is 6.24 and the company does not pay a dividend. The stock’s 52-week trading range is $8.34-$13.00, and at today’s price that’s about 22% above its 52-week low and 22% below the 52-week high. Green Plains beat analysts’ expectations when it reported quarterly earnings a couple of weeks ago, and the better new is that the company now gets 40% of its operating income from something other than ethanol. In September the company purchased 3.5 million of its own shares from its largest shareholder at $8/share. Not a bad deal.

Pacific Ethanol Inc. (NASDAQ: PEIX) has a median target price of $0.96 from a single broker. Shares are trading today at $0.72, for an implied gain of $0.24, or 33%. Pacific’s forward P/E is negative and the company does not pay a dividend. The stock’s 52-week trading range is $0.25-$7.98, and at today’s price that’s about 188% above its 52-week low and 91% below the 52-week high. After struggling to stay afloat, Pacific Ethanol last week said that it had retired the majority of its $35 million convertible debt six months ahead of schedule. The stock has gotten a boost from the news, but it is hard to see a lot more upside here, given the coming end of the federal subsidy. Still, there is decent action in the stock, which trades about 3.8 million shares a day on average, but it remains a timing play.

Solazyme, Inc. (NASDAQ: SZYM) has a median target price of $22.00 from 7 brokers. Shares are trading today at $9.20, for an implied gain of $12.80, or 139%. Solazyme’s forward P/E is negative and the company does not pay a dividend. The stock’s 52-week trading range is $7.68-$27.47, and at today’s price that’s about 20% above its 52-week low and 67% below the 52-week high. A Continental Airlines flight today from Houston to Chicago will use a 40%-blend of Solazyme’s bio-jet fuel. And United Continental Holdings Corp. (NYSE: UAL) has said that it will buy 20 million gallons of the stuff fuel next year to blend with petroleum-based jet fuel. That’s good news, of course, but hardly enough to whip up much enthusiasm for stock that came public in May and has seen its share price dive pretty consistently since then.

Gevo, Inc. (NASDAQ: GEVO) has a median target price of $17.00 from 7 brokers. Shares are trading today at $7.16, for an implied gain of $9.84, or 137%. Gevo’s forward P/E is negative and the company does not pay a dividend. The stock’s 52-week trading range is $5.32-$26.36, and at today’s price that’s about 35% above its 52-week low and 73% below the 52-week high. Gevo reported losses in the third quarter that exceed estimates, and EPS losses for the fourth quarter have gotten worse as a result. The US patent office last month refused to re-examine a patent denial for one of the company’s products. The company has a deal to supply 11,000 gallons of its fuel to the US Air Force for testing and a $5 million grant from the Department of Energy to work on making cellulosic ethanol. Neither is a game-changer, and that’s what Gevo needs.

Amyris Biotechnologies Inc. (NASDAQ: AMRS) has a median target price of $25.00 from 7 brokers. Shares are trading today at $12.99, for an implied gain of $12.01, or 92%. Amyris’ forward P/E is negative and the company does not pay a dividend. The stock’s 52-week trading range is $12.95-$33.99, and at today’s price that’s less than 1% above its 52-week low and 63% below the 52-week high. The annual low was set earlier this morning. Amyris has found a market for its algae-based products, but not as fuel. The company produces oils that are used by many cosmetics manufacturers. That’s a nice line of business, but a few thousand gallons of cosmetics doesn’t generate the same amount of revenue as several million gallons of auto and jet fuel.

Codexis, Inc. (NASDAQ: CDXS) has a median target price of $13.00 from 5 brokers. Shares are trading today at $5.13, for an implied gain of $7.87, or 153%. Codexis’ forward P/E is negative and the company does not pay a dividend. The stock’s 52-week trading range is $3.91-$12.24, and at today’s price that’s about 31% above its 52-week low and 58% below the 52-week high. Like Amyris, Codexis has found another market for some of its products. The company makes a testing kit for pharmaceutical manufacturers. Biofuel contributes little to the company’s revenue or profit, and, again like Amyris, the newer businesses don’t have the scale of jet or auto fuel.

Kior Corp. (NASDAQ: KIOR) has a median target price of $20.00 from 7 brokers. Shares are trading today at $15.75, for an implied gain of $4.25, or 27%. Kior’s forward P/E is negative and the company does not pay a dividend. The stock’s 52-week trading range is $8.88-$23.85, and at today’s price that’s about 77% above its 52-week low and 34% below the 52-week high. Kior priced at $15/share at its IPO in June, and after falling below $10/share and rising above $20 share, the stock is back to a small gain today. The company’s current market cap of $1.63 billion is nearly triple that of either Codexis, its nearest rival from the bio-fuel makers. There is no fundamental explanation for that difference, which could mean that this stock is terribly overpriced at current levels.

Paul Ausick

Filed under: Alternative Energy, Green Biz Tagged: ADM, AMRS, CDXS, GEVO, GPRE, KIOR, PEIX, SZYM, VLO

Drop in Copper and Corn Prices May Be Overrated (FCX, SCCO, BHP, RIO, MON, ADM, BG, POT, MOS, VLO, PEIX, JJC, CU, CORN, MOO, DBA)

Administrator — Wed, 05 Oct 2011 14:45:19 +0000

Since the beginning of September, copper and corn prices have fallen dramatically, with copper off nearly -35% from its 12 month high and corn off about -25%. Because both are often seen as leading indicators of economic growth, it’s interesting that this time the price of the two commodities may be following the economy instead of leading it.

Copper prices peaked in February, about a month behind copper miners Freeport-McMoran Copper & Gold Co. (NYSE: FCX), Southern Copper Corp. (NYSE: SCCO) and a little earlier than BHP Billiton plc (NYSE: BHP) and Rio Tinto plc (NYSE: RIO). The decline in share prices was gradual from about April through July, but beginning in August shares turned more sharply down, as did the price of copper itself.

Corn prices hit a peak in June, and are still about 20% higher than they were in October 2010. None of the big ag stocks are near that high except fertilizer maker Monsanto Co. (NYSE: MON), up 31% in the past 12 months. Archer Daniels Midland Co. (NYSE: ADM) shares are off -23% in the past year, Bunge Ltd. shares are off about -3%, Potash Corp. of Saskatchewan shares are down about -11%, and Mosaic Co. is off nearly -18%. Ethanol producers Valero Energy Corp. (NYSE: VLO) is up about 2%, while Pacific Ethanol Inc. (NASDAQ: PEIX) is barely breathing, off -96%.

The decline in the copper price began when orders from China began to cool off as a result of the country’s efforts to slow down its GDP growth. By some reports the country has an over-supply of housing that tops 65 million units. If the number is even half that, demand for copper in China could fall dramatically. And it’s possible to argue that a housing glut in China drove the copper price to new heights because construction in the US and other developed countries has stalled.

But the current global economic malaise is not entirely attributable to China. Eurozone sovereign debt and questions about the zone’s banks have pushed markets down hard and could be just as responsible for the falling price of copper as softer demand from China. In other words, copper could be following, not leading, a macroeconomic decline.

The falling price of corn can be attributed to better crop forecasts and the recent ‘discovery’ of more than 200 million bushels in US stocks has put even more pressure on corn prices. Unlike copper, though, corn prices get some demand help from a large alternative market. If corn is a leading indicator, then the effect of ethanol production, which consumes about 40% of the US corn crop, distorts its influence.

Ethanol production is highly profitable at the current price of around $6/bushel. Corn prices would have to rise to unprecedented heights over $9.50/bushel before demand from ethanol makers would start to decline. Even without the $0.45/gallon federal subsidy, corn prices would need to top $8/bushel before they would pinch the ethanol makers.

Something similar to the ethanol prop to corn prices doesn’t exist for copper. Some 70% of copper demand comes from construction and electrical/electronic industries. Of the remaining 30%, about 12% comes from the transportation industry and 9% comes from makers of industrial machinery. None of those sectors is large enough to prop up copper prices as ethanol props up corn prices.

The iPath Dow Jones-UBS Copper Subindex Total Return ETF (NYSE: JJC) is down more than -1.5% in the first half hour of trading this morning at $39.46, barely above its 52-week low of $39.08. The 52-week high is $61.69. The First Trust ISE Global Copper Index Fund (NASDAQ: CU) is up about 2.25%, at $26.37, in a 52-week range of $23.60-$46.85.

Agricultural ETFs are up slightly this morning. The Teucrium Corn Fund (NYSE: CORN) is up about 0.5%, at $40.09, in a 52-week range of $31.37-$50.69. The PowerShares DB Agriculture Fund (NYSE: DBA) is up about 0.6%, at $29.90, in a 52-week range of $26.60-$35.58. The Market Vectors Agribusiness ETF (NYSE: MOO) is up about 0.9%, at $42.30, in a 52-week range of $39.86-$57.93.

Paul Ausick

Filed under: ADR, Agriculture, Commodities, Economy, Infrastructure, Metals Tagged: ADM, BG, BHP, CORN, CU, DBA, FCX, JJC, MON, MOO, MOS, PEIX, POT, RIO, SCCO, VLO

No Ethanol Subsidy, No Problem (BG, RDS-A, CZZ, ADM, VLO, PEIX, GPRE, PBR, FUE)

Administrator — Fri, 19 Aug 2011 16:01:38 +0000

What will happen to ethanol makers when the US subsidy ends in December, as appears increasingly likely? Bunge Ltd. (NYSE: BG) apparently believes that demand will continue strong, at least in Brazil and maybe the US as well.

Bunge has said that it will invest $2.5 billion to expand its Brazilian sugar cane and biofuel capacity by 2016. The investment will expand the company’s milling capacity (called crush in the industry) by 50%, to a total of 30 million metric tons annually. The investment plans follow last year’s $12 billion joint venture, Raizen, in cane ethanol by Royal Dutch Shell plc (NYSE: RDS-A) and Brazil’s Cosan Ltd. (NYSE: CZZ).

Other US ethanol makers, including Archer Daniels Midland Co. (NYSE: ADM), Valero Energy Corp. (NYSE: VLO), Pacific Ethanol, Inc. (NYSE: PEIX), and Great Plains Renewable Energy, Inc. (NYSE: GPRE), are also preparing for an end to US subsidies on corn-ethanol although there is not likely to be much impact on their top or bottom lines. The subsidy has largely been passed through corn producers.

Bunge’s decision should help Brazil return to self-sufficiency in ethanol production. The country has been unable to meet demand for ethanol and is importing some from the US and Europe. That has driven up prices for ethanol and gasoline, which at some times has been cheaper than ethanol due to government caps on the price of fuel.

Petroleo Brasileiro (NYSE: PBR), or Petrobras, has been forced to sell gasoline at less than cost at times, and the company will be glad to see an increase in the crushing capacity for sugar cane. Petrobras recently announced that it would invest $328 million in a new facility to make cane-ethanol. The oil giant plans to spend more than $2 billion on ethanol production and increase its market share in Brazil from 5% to 12% by 2015.

In the US, the federal mandate for ethanol blending with gasoline increases demand and is partly responsible for the run-up of corn prices. Ethanol production consumes about 40% of the total US corn crop. Once the subsidy for corn-ethanol and the $0.54/gallon tariff on imported ethanol end, imports from Brazil could take off.

Ethanol made from cellulosic material was supposed to have contributed 250 million gallons to US supplies this year. Instead, it is producing approximately none. The mandated volume for 2012 is 500 million gallons, which the government is considering reducing to 3.5 million gallons. And even that small amount will be a challenge.

Bunge, Raizen, and Petrobras are putting themselves in a strong position for domestic consumption in Brazil as well as for exporting ethanol to the US, where supply is unlikely to be able to keep up with demand.

Bunge shares are up more than 0.5% today, at $61.19, in a 52-week range of $50.52-$76.13. The ELEMENTS MLCX Biofuels Index Total Return ETN (NYSE: FUE), though quite small and lightly traded, is up more than 1% today, at $12.33, in a 52-week range of $7.40-$13.24.

Paul Ausick

Filed under: Agriculture, Alternative Energy, Green Biz, Oil & Gas Tagged: ADM, BG, CZZ, FUE, GPRE, PBR, PEIX, RDS-A, VLO

Food, Ethanol Prices Set To Rise Again (ADM, DE, POT, VLO, PEIX, GPRE, KFT, SJM, GIS, K, TSN, HRL, SFD, MOO, DBA)

Administrator — Fri, 12 Aug 2011 13:12:06 +0000

Hot, dry weather is now expected to reduce the US corn harvest and lift consumer prices for everything from breakfast cereal to pump prices at the local service station. Agricultural stocks from Archer Daniels Midland Co. (NYSE: ADM) to Deere & Co. (NYSE: DE) to Potash Corp. of Saskatchewan (NYSE: POT) reacted favorably to the latest report from the US Department of Agriculture.

Ethanol makers Valero Energy Corp. (NYSE: VLO) and Green Plains Renewable Energy, Inc. (NASDAQ: GPRE) also got a boost, but Pacific Ethanol, Inc. (NASDAQ: PEIX) dropped to a new 52-week low of $0.45/share. Pacific Ethanol faces higher costs for corn than either ADM which grows some of its own and Green Plains which benefits from being located in the Midwest, near the nation’s corn-growing region.

Some analysts are projecting a price for corn at above $8/bushel, busting through the all-time high of just over $7.99/bushel set in June. The impact on food prices is likely to vary as some food makers absorb the price increases and others pass the increases along to consumers.

Kraft Foods Inc. (NYSE: KFT), J.M. Smucker Co. (NYSE: SJM), General Mills, Inc. (NYSE: GIS), and Kellogg Co. (NYSE: K) are all trading higher than they were a year ago, but have pulled back from annual highs set earlier this summer. Meat processors Tyson Foods Inc. (NYSE: TSN), Hormel Foods Corp. (NYSE: HRL), and Smithfield Foods, Inc. (NYSE: SFD) will likely switch at least part of their feed supply to cheaper wheat, helping keep prices down for chicken, beef, and pork.

Corn yields per acre are now expected to be 153 bushels/acre, down from a previous USDA estimate of 159 bushels/acre. But if hot temperatures continue, especially at night, yields could fall below 150 bushels/acre. That’s a 10% decline in the crop, and could push prices even higher.

For the ethanol makers, corn prices above $7.50/bushel make ethanol production unprofitable at the current price of around $2.60/gallon. Some wheat can be substituted for corn, but the price for ethanol will have to rise, to some extent cancelling any relief for consumers from lower oil prices.

Corn futures are trading slightly lower in Chicago this morning, after closing at $7.14/bushel yesterday. Soybeans and wheat also rose after the USDA’s report was released yesterday.

The Market Vectors Agribusiness ETF (NYSE: MOO) closed at $49.17 yesterday, up more than 4% on the day, and within a 52-week range of $41.83-$57.93. The PowerShares DB Agriculture Fund (NYSE: DBA) rose about 2.5% yesterday, to close at $32.21, within its 52-week range of $25.63-$35.58.

Paul Ausick

Filed under: Agriculture, Commodities, Food, Oil & Gas Tagged: ADM, DBA, DE, GIS, GPRE, HRL, K, KFT, MOO, PEIX, POT, SFD, SJM, TSN, VLO