Friday, June 22, 2012

Pacific Ethanol (PEIX) Adding Corn Oil to Business

Copying a number of other producers of ethanol in the United States, Pacific Ethanol (PEIX) is the latest to add a corn oil business to its revenue streams.

At this time Pacific Ethanol is installing corn oil separation technology at one of its four plants, and will have the rest outfitted with it by the first quarter of 2013, according to the company.

They added that revenue should be generated by that same quarter from the corn oil business, implying the first money will be made from the current installation at the one plant.

Executives at the company noted that the first plant should produce approximately 12 million pounds of corn oil, which would add an additional $4.5 million, or 7 cents a gallon to the operating income of the company on an annual basis.

It'll be interesting to see if this also produces a glut in corn oil, as how much demand is there for it if most of the ethanol companies increase corn oil supply. That would drive prices down, possibly defeating the purpose.

Ethanol companies should never have been propped up by the government, and now that they were artificially created, they have to adapt to the real market, where demand for the product is low, along with ethanol margins.

Add to that the destructive nature of ethanol on small equipment and older cars, and you have a very small percentage of people that are supportive of it. That doesn't account for the outrageous toll on the environment which enormous corn inputs cause.

Continual failures in the industry point towards it being a typical disaster when governments interfere with markets.

Pacific Ethanol is a very short step towards having to declare bankruptcy, and its late move into the corn oil business could end up being the nail that closes the coffin on it, depending on supply and demand in that segment.

Its share price of 57 cents tells you what investors think of it.