Agriculture Sector

[helios]

Ethanol Is Dream Deferred for Farming Towns Too Late to Biofuel
By Mario Parker

Bloomberg - Ford Heights Ethanol LLC applied in June 2006 to build a distillery in the Illinois town that bears its name, promising economic revival to replace abandoned houses and closed stores. Two years later, no work has begun.

For Ford Heights and other agricultural towns, the "green- collar'' job revolution envisioned by federal biofuel mandates is a dream deferred. Knee-high grass and old tires cover the site as record prices for corn, the main ingredient in ethanol, discourage investment in new plants.

The $20.8 billion industry may have itself to blame. Breakneck construction led to 168 ethanol plants, already producing more than U.S. mandates require for the fuel additive this year. The distilleries buy so much corn -- as much as a third of the U.S. crop this year -- that they have contributed to price increases, the U.S. Department of Agriculture says.

(San's comment: $20 Bil is the magic word for bio-ethanol market; the 2nd generation bio-ethanol product now uses cellulosic waste materials)

"I kept saying they're going to kill the golden goose,'' says Jim Jordan, president of Jim Jordan & Associates LP, a Houston fuel-consulting company. "We have in fact overbuilt. This thing is pretty devastating.''

U.S. President George W. Bush and Democratic presidential candidate Barack Obama, a senator from Illinois, have backed ethanol as a way to support American farmers and reduce dependence on imported oil. It's distilled from corn kernels in the U.S. and blended into gasoline. One corn bushel yields 2.75 gallons of ethanol.

Food Inflation

Initial enthusiasm has given way to concern that diverting crops for fuel is accelerating a rise in food costs. Riots have erupted over shortages from Haiti to Egypt.

Some U.S. food companies, including Springdale, Arkansas- based chicken producer Tyson Foods Inc., formed a "Food Before Fuel'' coalition in June to oppose ethanol mandates. John McCain, the Republican presidential nominee and Arizona senator, has "traditionally been opposed to ethanol subsidies that distort the market,'' says Tucker Bounds, a spokesman.

Ethanol may account for 20 percent of the gain in the rate of U.S. food inflation, says Ephraim Leibtag, a USDA economist. U.S. food prices may climb 6 percent this year, the most since 1980, the department estimates.

The overcapacity prevents lenders from financing ethanol plants that distill ethanol from corn kernels, says Mike Tian, an analyst at Morningstar Inc. in Chicago.

"A lot of these towns that hoped to get an ethanol plant probably aren't,'' he says.

Ford Heights Mayor Saul Beck says he was ecstatic in 2006 about having a distillery in his town of 3,300, where the U.S. Census found that 49 percent of residents live in poverty.

At least three ethanol producers went public that year, including Aventine Renewable Energy Holdings Inc., VeraSun Energy Corp. and Green Plains Renewable Energy Inc. in Omaha, Nebraska. At one point, the American Coalition for Ethanol tracked 500 planned plants, says Ron Lamberty, a vice president at the Sioux Falls, South Dakota, trade group.

Falling Margins

When Ford Heights Ethanol applied for a permit for its proposed $130 million plant, producers pocketed an average of $2.64 on every gallon made. By Sept. 10, rising corn prices reduced that margin to 57 cents, Bloomberg data show. Corn has risen 58 percent in the past year, to $5.3675 a bushel.

"This is a major bump in the road,'' says Walker Filbert, president of Heartland Ethanol LLC in Knoxville, Tennessee, which abandoned plans to build seven plants in Illinois.

In Ford Heights, charred remains of homes pepper the plant site's neighborhood.

"It would have brought some jobs,'' says Beck, 71. "They got the permit and we haven't heard anything else.''

Lenders balked at funding the project, says Jonathan Kahn, president of Ford Heights Ethanol: "One of our biggest regrets is that we couldn't get manufacturing in a community that so desperately needs it.''

On Hold

Across Illinois, 795 million gallons of ethanol are on hold, Chicago-based investment firm William Blair & Co. estimates. That's slowed construction and growth in permanent ethanol-related jobs, says Tom Hauser, vice president of CoBank, an Omaha-based lender to ethanol companies. Each plant employs about 50 people, who earn $40,000 a year on average, he says.

Producers' shares were battered. Aventine, based in Pekin, Illinois, fell 88 percent from June 2006 through Sept. 10. VeraSun of Brookings, South Dakota, dropped 78 percent; and Green Plains declined 82 percent.

The 168 plants had capacity for 9.96 billion gallons as of Aug. 26, almost 1 billion more than the U.S. requires this year, the Washington trade group Renewable Fuels Association says. Another 43 plants scheduled to be built or expanded would raise capacity to 13.8 billion gallons. Most make ethanol from corn.

Alternate Sources

Even established corn-ethanol producers put more emphasis on making ``cellulosic'' ethanol from alternate sources such as wood chips. The still-imperfect process doesn't promise immediate benefits for towns with nearby corn growers.

Poet LLC, which is based in Sioux Falls and is the largest U.S. ethanol producer, said in August it will open a $4 million South Dakota plant to produce ethanol from corn cobs by year- end. The capacity will be 20,000 gallons.

Asked whether Obama may reduce his support for corn-based ethanol as president, spokesman Tommy Vietor referred to an April speech in Indiana:

"We have to recognize that corn-based ethanol is a transitional technology,'' the candidate said then.

Source: Bloomberg.com, 12-Sept.

[winston]

THE BEAR MARKET IN FERTILIZER GETS WORSE

Our prediction of lower share prices for fertilizer makers is coming true in grand fashion.

About six months ago, we noticed the bull market in fertilizer shares had entered "stupid" mode. The big players here – Potash, Mosaic, Agrium, and CF Industries – have solid long-term outlooks. Asia's increasing wealth means rising demand for crops... which means rising demand for crop fertilizers like potash and nitrogen.

But like all rosy outlooks, folks went way too far with the story. Headlines of rising grain and fertilizer prices were front-page news in every paper in America. Everyone with 15 seconds of airtime on CNBC said, "Buy fertilizer."

Investors bought fertilizer all right... They bought and bought till these stocks traded for 40... 50... even 60 times earnings. Now, folks are learning again how painful it can be to place such huge valuations on stocks.

The "ExxonMobil of fertilizer," Potash, lost 11% of its market cap yesterday. It's down 42% from its 2008 peak... making this one of the world's biggest downtrends.

[winston]

Stats of the week:- 50%

Drop in the share price of the world's largest fertilizer company, Potash, in the past two months.

[kennynah]

it pays to "listen" to the loudspeakers at cnbc, especially when the decible is at highest level. They are like the VIX factor

[winston]

DJ MARKET TALK: Goldman Keeps Sinofert, BlueChemical At Buy

1021 [Dow Jones] Goldman Sachs keeps Sinofert (0297.HK), China BlueChemical (3983.HK) at Buy, targets remain at HK$5.25, HK$4.05, respectively. Says Beijing's removal of fertilizer price caps, government's pledge of not cutting subsidies to farmers, aren't total surprises; market-oriented pricing is positive on whole sector.

But adds, removal of caps won't boost earnings immediately, as current domestic fertilizer prices are below caps due to oversupply. Sinofert down 1.1% at HK$4.39, BlueChemical off 2.7% at HK$3.94.

[iam802]

With the recent rally and weakening of USD, DBA which covers some commodities is showing some positive signs

The price is now right at the edge of the kumo waiting to break through or pull back.

If it break through...it forms a cup formation without handle.

On the Ichimoku front, tenkan sen has already cross the slower kijun sen.

http://stockcharts.com/h-sc/ui?s=DBA&p= ... 0791056062

[blid2def]

Been watching for signs of a breakout, but still no convincing move after a few days... I see it's gone under 25 again today.

[iam802]

True...it is still not a convincing break. (still has not break through yet)

And since it is still inside the kumo, we can say that the trend is still not fully established.

Perhaps, the demand is still weak...it is just a knee jerk reaction to the weak USD

On the daily chart, what I would like to see is a full candle bar above the kumo.

[iam802]

Ok, last night's chart is in.

As GR has highlighted, the price movement is very weak. Yesterday, the price went back into the kumo.

This could be a normal price pullback since the volume is not very high.

A pull back can also suggest that there is a possibility that it is forming a cup-n-handle formation.

What I will be monitoring is that the price do not break through the kumo and signal a 'sell'.

[blid2def]

If you look across at the agriculture stocks, e.g. Potash (POT), Monsanto (MON), Mosaic (MOS), Agrium (AGU), Archer Daniels Midland (ADM), you'll see all of them are pushing at resistance, but not making any breakouts. The exception is Terra Industries (TRA) which is resisting a takeover attempt by CF Industries (CF) which is in turn the subject of a buyout attempt by Agrium...

Not sure what to make of it at this point... whether to adopt a neutral play, or wait for the breakout to happen and then go bullish.