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Thread: A review on how Ethanol stocks are doing this year

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    Default A review on how Ethanol stocks are doing this year

    Considering the current BP situation in Alaska and the violent activity in the Middle East ethanol is looking better and better everyday, IMHO. Here is some up to date info for those interested in ethanol investments.

    Shares of the nation's largest ethanol refiner Archer Daniels Midland*(ADM) are up 68% this year.

    The stock of pure-play ethanol refiner Pacific Ethanol (PEIX) leapt fourfold this year, before dropping back.

    Initial public offerings by VeraSun Energy (VSE) and Aventine Renewable Energy (AVR) raised more than $700 million between them, while another ethanol refiner, Hawkeye Holdings, has registered for its debut.

    Ethanol has provided good returns to ADM lately. In the fiscal year ended June, ADM's operating profits from corn bioproducts increased year-over-year from $259 million to $446 million.

    In total, ADM earnings rose 26% from the prior fiscal year, to $1.3 billion, or $2 a share, on a 2% rise in revenues to $36.6 billion. ADM shares have also bubbled up on an ethanol premium. At their recent level of 42, the company's shares valued the business at $31.8 billion (including debt).

    Trying to catch up in the U.S. ethanol market is ADM rival Bunge (BG), which is also the world's largest soy distributor. Since May the company has announced three joint ventures to produce ethanol in Mississippi, Illinois and Iowa — each in collaboration with farmer-owned companies.

    Investors have gotten giddier over ethanol pure-play Pacific Ethanol. It started late last year, when the company disclosed an $84 million stake placed by an investment trust of Bill Gates. From January to May, shares in the company ran from about 10 bucks to 44.50, before reversing course to a recent 19.21. That leaves Pacific Ethanol with a stock-market capitalization of about $775 million.

    After Archer Daniels, the largest U.S. ethanol producer is VeraSun. The company has two ethanol plants and is building three more, for a total production capacity of 560 million gallons a year — with the help of $230 million netted in a June initial public offering. In the 12 months ended March, VeraSun earned $1.3 million on sales of $302 million after about $22 million in interest on its $210 million in outstanding debt.

    The company's shares have retraced from their post-IPO high of more than 30 bucks, to a recent 23.71 — but that still values the enterprise at almost $2 billion (including debt).

    The U.S. now has 101 ethanol plants, with aggregate capacity to produce 4.8 billion gallons per year. By the middle of next year, capacity additions could lift the industry's output to seven billion, , according to the Renewable Fuels Association.









    * my personal fav
    Last edited by Vaughn; 08-10-2006 at 06:27 PM.

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    Default Re: A review on how Ethanol stocks are doing this year

    all true !!! However, if you consider that congressional passage of the ethanol fuel additive law and congressional passage of import quotas and a 50 cent/gal imported ethanol tariff were 'one time events' which vastly increased US ethanol demand thus resulting in a 'one time adjustment' in ethanol stock prices, and then view the ongoing prospects of both ADM and BP, they bear a striking similarity ...



    and if you compare the ongoing prospects of ADM against an oil major who is less 'troubled' than BP, like Exxon Mobil ...



    From a dispassionate investor's standpoint, all of the Ethanol stock plays were excellent investments if the investor bought in early re the new ethanol legislation and ethanol stock price readjustment which occurred immediately afterward. However, once that price readjustment due to the new legislation had stabilized (like by the first of May), on an ongoing basis ethanol stocks now appear to be acting just like other stocks in the energy sector.

    Not wanting to take anything away from the success of ethanol investors who bought in during feb-mar and scored quick profits during the one time price readjustment, but from a standpoint of future investment possibilities it is very important to sort out the effects of one time events from ongoing profitability prospects. Re ethanol, this is exactly what many hedge fund managers decided to do ... they bought in cheap in Feb after being 'tipped off' by their buddies in the US congress, then sold out in late April and booked their profits as soon as the one time price readjustment had completed. In general, investors who have 'held on' to ethanol stocks since the first of May have taken small losses.
    Last edited by Melonie; 08-11-2006 at 09:37 AM.

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    Default Re: A review on how Ethanol stocks are doing this year

    In general, investors who have 'held on' to ethanol stocks since the first of May have taken small losses.


    That is a rather dubious statment considering that in general the market has not been all that great over the past 3 months.

    Here is the 1/2 year chart for my fav, ADM:

    Now compare that to 6 month chart for the Dow:

    As the charts clearly show my fav ethanol stock ADM has had a steady upward trend compared to the over all Dow.

    Now add in the unrest in the some of the largest oil producing areas of the world, the current shut down of one of the largest oil fields in this country and the all the environmental problems that come with oil -- when looking at the big picture ethanol continues to look better and better everyday (unless a person already has an anti-alternative energy/uber Neocon position to begin with, in that case NOTHING will make ethanol look good to those people).

    on an ongoing basis ethanol stocks now appear to be acting just like other stocks in the energy sector.
    If someone chooses to take that ^ position then one must admit that ethanol has been a good investment and looks to continue to stay that way for awhile. Why? Because energy stocks often soar on worries about supply disruptions from Iran, Nigeria, Venezuela, Russia, wherever.

    For example, here is the 6 month chart for Chevron. and for Exxon:

    Compare these charts with the ADM chart while also considering the geo political and environmental aspects of both ethanol and oil for a wider view on what makes for a better investment these days and for the future.

    One thing is for sure, though. Most ethanol stocks have been a good investment thus far and there is no real indication that will change in the near future.
    Last edited by Vaughn; 08-11-2006 at 05:11 PM.

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    Default Re: A review on how Ethanol stocks are doing this year

    you can try to ignore the 'one time event' effects of a change in gov't laws / regulations, but it does happen, it causes a big 'readjustment' in the price of the affected stocks, but it does not make for an ongoing trend. Here's a new example of a 'one time event' spawned by new security laws enacted in the last couple of days ...



    Parlux of course is a perfume maker, who depended on duty free shops in international airports for much of their sales ! Thus the hedge funds figured this out after yesterday's foiled UK liquid bomb plot resulted in new security regulations that effectively banned the sales of liquid products in airports, sold the stock short, and cashed in like crazy. However, just because the stock dropped 41% today does not mean that is going to continue to drop any farther in the future. Parlex has lost whatever sales came from duty free shops, but has not lost existing business via department stores and other outlets. Ethanol companies basically experienced the same 'one time event' situation last February, when new laws expanded markets and kept out foreign competition causing a big upward jump in ethanol stock prices. However, in the same vein as Parlex but in opposite 'polarity', the ethanol market is not going to continue to grow at anywhere near the same rate that last February's new laws outlawing MBTE and requiring ethanol caused to happen.

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    Default Re: A review on how Ethanol stocks are doing this year

    you can try to ignore the 'one time event' effects of a change in gov't laws / regulations, but it does happen, it causes a big 'readjustment' in the price of the affected stocks


    I'm not ignoring it, I just don' t see it as THE most important thing when considering he value of ethanol in the past, now or in the future. It is just one of many things that affect the industry and thus investments in the industry.

    the ethanol market is not going to continue to grow
    Prove it.

    You are entitled to your own opinions ofcourse but please stop trying to present them as facts because they are not facts.

    The FACTS show that ethanol has in most cases been a good investment. There are no facts as of yet that show that ethanol will suddenly become a worthless or poor investment in the future.

    I presented a current review of how ethanol stocks have been doing, stop trying to drown out the positive facts of the situation with your negative uber neocon opinions.

    If you must continue with this deep seated need to put down ethanol (and or as usual have the absolute last word on a subject) then please stick to topic related comments (perfume and airline passenger regulations is off topic, btw) Thanks.

    Ethanol companies basically experienced the same 'one time event' situation last February, when new laws expanded markets and kept out foreign competition causing a big upward jump in ethanol stock prices.
    WRONG! According to the 6 month chart for the nations largest ethanol company ADM began it's rise in March and had it's biggest spike (on the 6 month chart) in value in May and mid July.

    In general, investors who have 'held on' to ethanol stocks since the first of May have taken small losses.
    Either you are choosing to post lies because of your uber neocon and anti green opinions OR you have no clue what you are talking about!

    According to the chart the largest US supplier of ethanol (ADM) had a very nice spike in stock value between May 1st and May 15th. Current prices are still above $40. In Feb they were only in the low $30's

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    Default Re: A review on how Ethanol stocks are doing this year

    While I have focused alot on ADM lets take a quick look at the #2 ethanol company VeraSun. Here is a tid bit on the potential of VSE :

    "While this pure-play ethanol producer probably isn't for investors who don't have ice water in their veins, it does have a lot of promise for growth. VeraSun will definitely add some zing and volatility to your portfolio -- which could be good or bad, depending on your tolerance for volatility"

    "There is certainly a place for VeraSun in the ethanol market. Environmental concerns have driven enormous demand for an increased shift to ethanol, led by the Federal Government, Ford (NYSE: F), General Motors (NYSE: GM), and DaimlerChrysler (NYSE: DCX). VeraSun intends to help meet this demand by increasing its ethanol production from its current level of 230 million gallons per year to 560 million gallons by early 2008. These factors will make the company a cold lock to experience similar continued growth and epic revenues in its upcoming quarters"

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    Default Re: A review on how Ethanol stocks are doing this year

    What can be proved is that the US ethanol industry based on corn is not competitive price-wise compared to foreign ethanol industries based on sugar cane. What can be proven is that the current ability of the US ethanol industry to turn a profit is solely based on federal laws which established import quotas restricting the amount of foreign ethanol which can be imported into the US, and federal laws which established tariffs which add 50 cents/gal to the price of foreign ethanol which can be brought across the US border. What can also be proven are the billions of US taxpayer dollars paid out every year to US corn farmers which allow them to continue to turn a profit given the current market price of corn - without which the cost of producing US corn base ethanol would be even higher.

    From a dispassionate investor standpoint, the economics behind US ethanol production are totally dependent on continued protectionism of the US gov't. This is a risky situation because those gov't protections which make the difference between profits and losses for the US ethanol industry could be circumvented or cancelled just as quickly as gov't mandates to outlawing MBTE and forcing the use of ethanol as a substitute fuel additive created the US ethanol boom market last February.



    (snip)"Second, it's legal. Under the recently announced Central America Free Trade Agreement (CAFTA), a "carve-out" or special treatment dating to the 1984 Caribbean Basin Initiative (CBI) permits up to 7 percent of the previous year's U.S. ethanol output to be imported duty free.

    That means 230 million gallons of the fuel additive could flow around tariff dams and into the United States in 2004. As the United States moves toward its goal to produce 5 billion gallons by 2010, the tide of tariff-free ethanol could swell to 350 million gallons.

    Third, Brazilian (those pesky Brazilians!) ethanol is three times cheaper than U.S. ethanol, about 60 cents a gallon compared with today's American price of $1.80 a gallon.

    Fourth, Brazil (those pesky ... ) has the ethanol. It is the world leader in sugar production, ethanol production and ethanol exports. In 2003, Brazil harvested 350 million metric tons of cane, produced 3.6 billion gallons of ethanol and owned 50 percent of the global ethanol export market.

    When the National Corn Growers Association got wind of Cargill's plans, first reported by Reuters on May 6, the group's leaders vapor-locked. NCGA and Cargill have longstanding ties, from Capitol Hill lobbying efforts on free trade, biotech and ethanol to Cargill's participating in and partially funding NCGA events.

    NCGA took a few days to clear its carburetors before sending a "sharply" worded letter from its president, Dee Vaughn, to Cargill buddy and boss Gregory Page May 10. After moaning about the global food giant's motives ("... it is disheartening and curious ..."), NCGA cut to the chase.

    Today, 75 U.S. plants produce 3.2 billion gallons of ethanol, and 13 plants with 500 million gallons capacity are being built, Vaughn said. "But Cargill is not investing in any of these facilities or in expansion of existing plants owned by the company."

    Also, "The intent of the (CBI/CAFTA) carve-out was to promote economic development" in poor Latin American nations, "... not merely to serve as a vessel to enhance the bottom line of a multi-national company like Cargill."

    Naivet aside, Vaughn finally got to the punch line: "I fear Cargill's actions will only further erode support for the agricultural trade agenda in the United States ..." because "(w)hile NCGA supports an aggressive trade agenda, we cannot move faster or farther than our grassroots."

    If you reread those lines slowly, the flashpoint between NCGA and Cargill is not the threat of imported ethanol, Cargill's bottom line or even the company's ability to push longtime friends to the floor when big money beckons.

    No, NCGA's real fear is that Cargill's intention to invest in imported ethanol threatens to undermine the friends' collective goal of an "aggressive free trade agenda ... faster and farther than our grassroots" are willing to go today.

    In short, while both know free trade will bring cheaper Brazilian ethanol - and cheaper cotton, beef, wheat, soybeans, sugar, vegetables, poultry and pork - into the United States sooner or later, NCGA's good old boys prefer it to be a little later than a little sooner and not ethanol at all."(snip)

    Obviously, Cargill is 'betting' that CAFTA will be passed in the near future - which will have the effect of rendering every US ethanol producer non-profitable by exposing them to the competition of much less expensive foreign produced sugar cane based imported ethanol. Thus Cargill is investing in Brazilian ethanol facilities instead of US facilities in preparation for this potential upcoming change in US laws. Thus any investors thinking about making a long term investment in ethanol need to face the key question ... should they invest in ADM or some other US based ethanol player, or should they invest in brazilian based Cargill, because the future of both companies will turn out very differently depending what does or does not happen re future CAFTA legislation ! And any 'pure ethanol play' US companies like VeraSun will live or die by future CAFTA legislation !

    I have no particular gripe with the US ethanol industry - my gripe is with the US gov't - because my tax money is being used to support the 'politics' of corn based US ethanol production, and because the US tariffs and quotas against cheaper imported ethanol are forcing me to pay a higher price per gallon for ethanol additive gasoline than would be necessary if imported ethanol were available at the 'world price' for fuel blending.

    Bottom line I guess is that if one wants to invest in an ethanol company then fine help yourself. However, it is only prudent to realize the financial realities of the US ethanol industry, its total dependence on existing US legislation to protect it from foreign competition in order to turn a profit, and the future investment risks if and when US legislation is changed such that much less expensive foreign imports are allowed into the US market. Regardless of the hype that 'less than objective' financial reports put forth, the charts don't lie and a trend is a trend ...




    I would also point out that investors in 'pure ethanol play' VeraSun, besides those fortunate few (i.e. the hedge funds and big investment house cronies) who were able to get their hands on VSE IPO shares, have seen nothing but losses ever since the day the stock went public.

    The 'tin foil hat' crowd is of the opinion that most ethanol startup companies are extremely reminiscent of high flying tech stock companies of the late 90's ... lots of media hype, lots of hot money following that hype and leaving just as quickly ... companies generating lots of cash from investors but not from profits ... but everybody has their own opinion. A lot of people made money from high flying tech stocks - but a lot lost their a$$ as well. Caveat Emptor !!!
    ~
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    Last edited by Melonie; 08-12-2006 at 04:42 AM.

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    Default Re: A review on how Ethanol stocks are doing this year

    What can be proved is that the US ethanol industry based on corn is not competitive price-wise compared to foreign ethanol industries based on sugar cane
    At this time that has little to no bearing on US investors of ethanol because as you like to mention with every key stroke there are laws to protect US ethanol from having to compete with foriegn suppliers. Also it is being made out of more than just corn. Corn just happened to come first. For example ADM is also making it out of soy. Other things it can and is being made out of is grasses, beets and so on. Corn came first but it isn't the only thing.

    What can be proven is that the current ability of the US ethanol industry to turn a profit is solely based on federal laws
    ^ LIE. That is only one part of the picture. The industry profits are not 100% based on any one thing. Profits are based on numerous factors.

    I have no particular gripe with the US ethanol industry
    Post after post of yours shows otherwise but I am not going to argue over it.

    I would also point out that investors in 'pure ethanol play' VeraSun, besides those fortunate few (i.e. the hedge funds and big investment house cronies) who were able to get their hands on VSE IPO shares, have seen nothing but losses ever since the day the stock went public.
    That is another one of your lies. While the close on Friday was in fact low (as was numerous non ethanol stocks and the Dow in general) VSE has been all the way up to $30 (up from the $23 opening offer) and on just this past week it was trading at several dollars above the opening offer.

    I personally bought 1000 shares a $23.40 and then sold when it hit $30. Clearly I did not take a loss at all. I am considering buying in again since it's running low and then maybe selling again once it climbs back up.

    Also it is important to consider that VSE has not even ben traded for a full quarter yet. Therefore it isn't exactly the brightest thing for you to count them out as EVER having any profit making ability for investors. In addition, as was mentioned in the last link I posted last night:

    "Monday, VeraSun announced that its second-quarter earnings of $152.3 million had surpassed last year's second-quarter earnings of $34.5 million by $117.8 million, or 341.7%. These sales soundly beat analysts' expectations of $142.9 million. The increase swung the company from being $3.9 million in the red for 2005's Q2, to $19.6 million in the black for the 2006 Q2. It also set the stock ablaze; Vera Sun opened at $25.01 on Tuesday, 8.64% above Monday's close. "


    Bottom line I guess is that if one wants to invest in an ethanol company then fine help yourself. However, it is only prudent to realize the financial realities of the US ethanol industry, its total dependence on existing US legislation
    That was all fine to the point of the lie about total dependance. As has been pointed out over and over that federal laws regarding ethanol are only one small part of the picture. Not to mention that many, many, many other industries besides ethanol have federal laws that affect them, including "big oil".

    However, The purpose of this thread was to review how ethanol has been doing this year not to debate how much I like or you hate ethanol. The original topic of this thread has been fully covered at this point (and then some) and the FACTS show that ethanol has been doing VERY well for the most part. No amount of your personal hatred for me or anything "green" or non neocon can change the facts that overall ethanol has had nice profits year to date.

    That being said, I see no point in this continued back and forth between us. As I wrote before, the thread topic of reviewing ethanol profits year to date has been fully coveredUnlike you, I am not here to argue. I have pointed out the facts, corrected several of your downright lies and have more than made my point.
    Last edited by Vaughn; 08-12-2006 at 04:19 PM.

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    Default Re: A review on how Ethanol stocks are doing this year

    what more can I say ... people know how to read charts



    obviously, ADM has lots of other business interests besides ethanol !

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    Default Re: A review on how Ethanol stocks are doing this year

    Melonie posted the 3 month chart ( the last 3 months have been bad for ALOT of stocks in general) above. However if people want a better overall view of the ethanol situation look at the 1 year chart. It shows a MUCH different picture than she would prefer people to see!




    Despite Melonie EXTREEM hatred of me and alternative energy in general the facts are still the facts:


    Shares of the nation's largest ethanol company ADM are up 68% this year.

    PEIX leapt fourfold this year, before dropping back.

    Initial public offerings by VSE and AVR raised more than $700 million between them.*

    Clearly, ethanol has done quite well year to date , especially considering that the market has been quite unstable especially over the past 3 months.

    I will do another review thread in a few weeks when there is more info available for review.


    * these two have not even traded for a full quarter yet so their true value is still very much up in the air
    Last edited by Vaughn; 08-12-2006 at 04:53 PM.

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    Default Re: A review on how Ethanol stocks are doing this year

    Shares of the nation's largest ethanol company ADM are up 68% this year.
    thus proving the wisdom of 'diversification'. While ADM's ethanol business may be considered large in terms of the ethanol industry, in actuality it is a small percentage of ADM's total agro-business - such that the ethanol losses experienced over the past 3 months have been almost counterbalanced by profits from other business sectors. I'll be the first to admit that the Corn business is a moneymaker, and ADM is of course tied up in seed corn, fertilizers etc. in a big way.

    PEIX leapt fourfold this year, before dropping back
    true ... only proving the fact that the increase was directly correlated with the 'one time event' of a change in fuel additive regulations by the US gov't ... which will not be repeated in the future

    Initial public offerings by VSE and AVR raised more than $700 million between them
    true ... proving that there are billions of dollars of 'hot money' out there which will try to cash in on IPO's, but proving nothing about the profitability of the companies involved. Perhaps it proves there is a shortage of "greater fools" willing to buy shares after the IPO's initial day of trading was over. VSE and AVR share prices have never come back to within 10% of the price set on the initial day of trading, and are now down 20-30% from their first day trading price.

    I will do another review thread in a few weeks when there is more info available for review.
    an excellent thought. By then there will be even less 'one time event' residuals and more correlation to actual company profitability.

    Despite Melonie EXTREEM hatred of me and alternative energy in general the facts are still the facts:
    Truly, I have no hatred for either you or for alternative energy. However, when it comes to 'green', on a financial forum IMHO the only 'green' that matters is dollars and cents. Therefore, political correctness aside, when it comes to dollars and cents issues and/or an honest evaluation of companies future investment prospects, media hype is going to be scrutinized and economic fundamentals behind these companies are not going to be glossed over.

    In fact I'll congratulate you for having the foresight to buy into ethanol stocks at the first of the year ... this was a somewhat risky gamble that the US gov't would indeed ban MBTE and mandate the use of ethanol instead, a gamble I considered to be too risky to invest in myself, and you won the bet. However, this does not mean that the one time price increase in the ethanol sector as a result of that US gov't legislation is going to repeat itself for the benefit of future investors.
    Last edited by Melonie; 08-12-2006 at 05:03 PM.

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    Default Re: A review on how Ethanol stocks are doing this year

    VSE and AVR share prices have never come back to within 10% of the price set on the initial day of trading
    As far as VSE goes that is yet ANOTHER downright lie posted by you.That makes like 4 or is 5 lies you posted in this thread so far? But whatever. The fact of the matter is that just this past week VSE was trading at several dollars ABOVE the opening offer.

    As for AVR it is awful soon to be passing final judgements on how this company will do longterm. Seriously, how long has this one even been traded?

    Not to mention that the market is pretty darn unstable right now with all that is going on in the world these days.

    I'll congratulate you for having the foresight to buy into ethanol stocks at the first of the year ... this was a somewhat risky gamble that the US gov't would indeed ban MBTE and mandate the use of ethanol instead
    Just to clarify I had some ADM as far back as 9/01 but I did buy more this year but the ban on MBTE had little to nothing to do with it. I did it because I believe that ethanol is the fuel of the future and because ADM is the safest bet in the ethanol industry and I had some extra $ to invest at the time.
    Last edited by Vaughn; 08-12-2006 at 05:20 PM.

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    Default Re: A review on how Ethanol stocks are doing this year

    who's lying ? AVR closed around $39 on the initial day of trading, and the best it has managed is a recovery to about $31 . If you're referring to AVR's initial bid offer at the opening of it's initial day of trading, the only people who actually had these shares to sell in advance of the market opening were hedge funds and big time investment cronies of the financial house that floated the IPO. If you're trying to tie the financial prospects of a company's stock to the events of the first 8 hours during the initial day on which its stock shares were traded, that says quite a bit about the hype and 'financial manipulation' surrounding the ethanol companies versus economic fundamentals.



    I would also point out that the Barrons article which was the apparent source of many of your posts actually tells two sides of the story. I won't quote the content beyond this evaluation by Barrons ... "The Bottom Line - Archer Daniels Midland, the leading producer of the fuel, has seen its shares surge 68% this year. But that stock, at a recent 42, may now be 15% overvalued."



    let's agree to table the issue and see what the 3rd quarter results look like.

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    Default Re: A review on how Ethanol stocks are doing this year

    AVR closed around $39 on the initial day of trading, and the best it has managed is a recovery to about $31 . If you're referring to AVR's initial bid offer at the opening of it's initial day of trading, the only people who actually had these shares to sell in advance of the market opening were hedge funds and big time investment cronies
    Let's not forget how long (or rather how short) of a time AVR has been traded and how the market has been doing in general during that time. As I said before, it is WAY too soon to be passing judgements on AVR. They are late to the game have some serious competition, but who knows what the future will hold.


    let's agree to table the issue and see what the 3rd quarter results look like.
    Fine by me! Until then this is what the year to date results look like for the ethanol industry:
    Last edited by Vaughn; 08-12-2006 at 05:37 PM.

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