Harry de Gorter and Jerry Taylor have written a nice piece on the need to let ethanol protectionism expire. There is a current subsidy of 45 cents per gallon and an import tariff of 54 cents per gallon. Even Al Gore admits that ethanol is not what we had hoped for.
The House passed HR 4853 on December 17 and it was signed by President Obama that day.
- Section 701 extends $1 per gallon tax credit through 2011 and also add a credit for diesel fuel made from biomass.
- Section 704 excludes black liquor ethanol from tax credits
- Section 708 extends the subsidies and tariffs on ethanol until 1/1/2012.
- Section 711 extends tax credits to alternative fuel vehicle refueling property placed into service after 12/31/2010
We know ethanol producers will be receiving special treatment from the government we can try to use that information for our own purposes. We know that some of these ethanol producers will not be going out of business immediately, but are they a good place to park your money? The ethanol industry has been lobbying for subsidies because they are not operating from a position of strength. On 12/20/2010 these might see a rise in price because of the news. Green Plains Renewable Energy bounced off its lower Bollinger Band has started to hove upwards to the upper band at around 11.50. Green Plains managed to post 19.79M in earnings in FY2009. Green Plains might be worth considering if it breaks out into an upward trend after being in a tight range since dropping off in early November.
Pacific Ethanol Inc on the other hand posted a net income around –300M. The chart also shows us a downward trend after the gap up continuing a downward trend. Pacific Ethanol and the other companies in this space look like good short sell opportunities since they are still in a downward trend.
China Integrated Energy is not in the US and not affected by the subsidies or tariffs. They have a nice balance sheet and a very nice PEG Ratio of 0.28. For some reason the Chinese manage to stay ahead of the US in terms of alternative fuel production.
In an ideal libertarian world there would be no subsidies or tariffs and the people would keep more of their money, rather than have it distributed to other parties. I am not questioning the wisdom behind extending the subsidies for ethanol producers. If we disagree with what the government does with our tax money, we have the option of taking action that makes us whole again.
The clever combatant imposes his will on the enemy, but does not allow the enemy’s will to be imposed on him. – Sun Tzu
Green Plains Renewable Energy Inc
BioFuel Energy Corp
Pacific Ethanol Inc
Earnings: -308.15 M
Rex American Resources Corp
Downward channel. Stay away until it turns up or go for a short sell at the top of the channel.
China Integrated Energy
Broken out of the downward trend. Potential entry point if it holds.
As always do your own research. These examples are educational tools used to teach chart reading. Other evaluations should seriously be considered before buying or selling any investment.