Tuesday, March 9, 2010

"Ethanol Making Comeback as Valero Sees Profit Where Gates Lost" (ADM; PEIX; VLO)

We haven't had much on ethanol in the last couple years. If I remember correctly our last two posts were "Ethanol: "Whiskey Toothpaste" (Rinse with soda)" and "Ethanol: "Brown-Forman profit rises after costs are cut" (BF.A BF.B)".

Here is a first-rate story on where the commodity and industry are now. definitely worth a read, I've got a feeling we'll be referring back to it.
From Bloomberg:
Ethanol, the commodity that cost Bill Gates more than $44 million the last time prices collapsed, is poised to rally as much as 20 percent as the fastest drop since 2008 spurs demand.

Falling corn prices and record ethanol supplies have driven the price down 17 percent in three months to $1.634 a gallon, its worst run since 2008’s fourth quarter. It will average $1.96 a gallon at the peak of the U.S. summer driving season as refiners from Valero Energy Corp. to Sunoco Inc. mix more into gasoline made from increasingly pricey oil, according to the median of 10 analyst estimates compiled by Bloomberg.

Four years after George W. Bush made ethanol a centerpiece of his presidency’s push to cut dependence on foreign oil, three of the biggest producers have sought bankruptcy protection and prices have fallen 61 percent from their mid-2006 record. Now demand is rebounding because ethanol is almost 66 cents cheaper than gasoline, the biggest discount in 14 months. The potential gains prompted Valero and Sunoco to buy failed distilleries.

“Margins today are better than a year ago, absolutely,” said Todd Becker, the chief executive officer of Green Plains Renewable Energy Inc., the fourth biggest producer, in an interview. “The industry is on pretty good footing for 2010.”

The Omaha, Nebraska, company reported a record fourth- quarter profit of $23.1 million last month, up from a $1.85 million loss a year ago. Green Plains sold new shares in March, the first producer to do so in almost two years. The stock closed at $14.48 yesterday, up from $1.32 a year ago, its best 12 months since going public in 2006.

Crack Spread

Producing gasoline became less lucrative as the worst recession since World War II cut fuel demand. After selling for a record $37.48 a barrel more than crude oil in May 2007, gasoline now goes for $14.276 more. The 62 percent decline in that so-called crack spread is being exacerbated by rising oil prices, which have almost tripled since February 2009’s low of $33.98 a barrel.

Using more ethanol can improve profits for refiners who get a 45-cent tax credit for each gallon they blend. The incentive has effectively been more than doubled by falling corn prices, which account for 70 percent of the alternative’s cost. Corn has plummeted to $3.75 a bushel from a record $7.9925 in June 2008....MORE