How Much Do Ethanol Prices Impact Pacific Ethanol?
Ethanol prices can have a significant impact on ethanol stocks. That’s known as price risk. Companies can mitigate price risk with futures contracts.
In 2014, about half of the corn produced in the United States was used for the production of alcohol for fuel use, primarily ethanol.
Fossil fuels are non-renewable, and a shortage can wreak havoc on the economy. It was the desire for alternative energy that gave rise to the ethanol industry.
In the United States, regulations mandate the use of biofuels in gasoline. Trump’s appointment of Scott Pruitt as next head of the EPA may be spurring speculation.
Pacific Ethanol (PEIX) stock has had an impressive return, almost doubling from $4.90 at the beginning of the year to $10 as of December 20, 2016.
Pacific Ethanol (PEIX) shipments have grown by 44% over the past 12 months. But the selling prices of ethanol have fallen over the same period.
In the past 12 months (ending September 2016), Pacific Ethanol’s median gross margin rose slightly YoY to 2% from 1%.
Pacific Ethanol’s revenue comes from two segments, Ethanol Production and Marketing. In 3Q16, ~64% of the company’s revenue came from Ethanol Production.
Pacific Ethanol’s Ethanol Production segment contributed the most to growth and saw a shipment volume growth of 90% YoY to 478 million gallons.
Ethanol is largely produced from US corn, which is also the largest producer of corn globally. Pacific Ethanol is one such producer of ethanol in the US.