Ethanol on Fire!
Just last week I was talking about how slammed ethanol was getting. Well, that looks like it’s changed.
And you can thank Pacific Ethanol (The company that’s dropped like 90% in the past two years) They announced a loss (but if you take out the charge it’s a profit…) of 90 cents a share. So they, of course, get taken over 40% higher.
That was enough to trigger the whole, oversold, sector to snap higher.
Aventine renewables popped 15%
Verasun energy popped 15%
And even ADM moved slightly higher.
You should know that when a 90 cent per share loss turns into ‘good news’ that something is bubblin.
According to Forbes, ethanol producers are doing better because of record high gas prices. Let’s not forget how much gas it takes to create one gallon of ethanol. Depending who you talk to, we either come out with slightly more ethanol than gas, or slightly less.
Either way, higher gas prices are a big input to the price of ethanol. So higher gas prices should mean more expensive ethanol (or squeezed margins, either way, NOT GOOD). And let’s not forget that ethanol is the worst fuel in the world.
It kills your gas mileage while at the same time helping starve children in third world countries.
Private industry needs to hurry up and get cellulosic ethanol processes up and running. In the next few days, I’ll tell you of a few companies trying just that.
Check out Valcent Products. Can I copy a brief synopsis on the company from Dr. Berry? Well if not, just bounce the email.
“MB: A name that I like a lot is Valcent Products Inc. (OTCBB: VCTFF) in El Paso, Texas. I’ve been to visit the company three or four times. I make a point to do this with discovery plays because I’m looking for improvement. If I don’t see it, I won’t waste my time. Valcent hired a couple of Ph.D.’s in plant biology to build a closed-loop system to grow algae. Algae are prolific and they produce oil. The problem has always been that if you grow them on a pond, the sunlight can no longer get through once they start to populate. Glen Kertz, who is in charge of Valcent’s greenhouse operations, built a closed loop system of bags that hang in a greenhouse. The system runs water through the bags, and after enough algae have grown, it’s harvested. Valcent expects to produce 33,000 gallons per acre per year of vegetable oil. As an added benefit, the algae consume carbon dioxide and give off oxygen, so the company could earn some carbon dioxide credits. Once Valcent decides exactly how to produce the oil, I think this could be a very, very interesting play. It’s a discovery; it’s a technology for closed-loop production of algae. To my knowledge, this has never been done before.”
Mr. Delvalle:
Those are some big gains today. Almost TOO big. I am wondering if people are in a short-term craze and the stocks will drop just as hard next Monday. Although longer term (6 months to 1 year) I think that ethonol is a great play, the huge gains today are probably all emotional and can’t hold.
Anonymous – thanks for the tip. will definitely check that stock out.
Jonathan,
I don’t like seeing everything pop just because one company would have made a profit had it not taken a 96 cent per share charge.
Still, ethanol stocks have been oversold for a long time. This pop was much needed. What i’d like to see is a resumption of a normal up trend (with higher highs and higher lows).
If I can see an uptrend take out a resistance or two, i’d feel much better about getting involved.
Until then – playing ethanol is like playing the lotto