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Thread: VeraSun moves toward diversification w/ biodiesel

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    Default VeraSun moves toward diversification w/ biodiesel

    BROOKINGS, S.D. (AP) - VeraSun Energy Corp., the nation's second-largest ethanol producer, said Friday it plans to produce biodiesel, a clean-burning renewable fuel, from oil extracted from distillers grains, a co-product of the ethanol production process.

    VeraSun said it will be the first company to develop a large-scale, commercial facility for biodiesel production from a co-product of ethanol making - creating two biofuels from the same feedstock.


    (snip)

    VeraSun is evaluating locations for a 30-million-gallon-per-year biodiesel production facility, with plans to begin construction in 2007 and production in 2008. The company also filed a provisional patent application with the Patent Office covering the production process.

    Shares of VeraSun rose 29 cents, or nearly 2 percent, to close at $17.06 on the NYSE, where the stock has ranged between $14.88 and $30.75 since going public in June with an offering worth nearly $420 million.

    A move toward diversification is attractive for VeraSun, as ethanol stocks have recently shifted from darlings of Wall Street to laggards as the price of crude declined. Earlier Friday, Thomas Weisel analyst Kevin Monroe started coverage of VeraSun with an "Underperform" rating, saying that although he sees the company maintaining its position as one of the top ethanol producers through 2008, VeraSun's fortunes are tied to unleaded gas prices, which are "extremely volatile."


    (snip)

    "Creating another renewable fuel from an existing co-product of the ethanol production process makes good economic, business and environmental sense," added Endres, "We are adding to the renewable fuel supply, enhancing the content of a valuable animal feed, and creating additional value for our shareholders."

    Raymond James analyst Pavel Molchanov, who rates VeraSun a bullish "Strong Buy 1," was encouraged by VeraSun's announcement, particularly as its move toward biodiesel would make the company the first to directly link ethanol and biodiesel production on a commercial scale.

    "In effect, VeraSun wants to create a brand new profit center, likely increasing the profitability of its ethanol co-products"

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    Default Re: VeraSun moves toward diversification w/ biodiesel

    FanDancer, you're probably correct that this announcement will result in stock price gains for VSE. Considering that this Ethanol stock has lost half of it's share price value over the past 6 months, and has just about completed a 'dead cat bounce' pattern over the last month, the share price is likely to rise a bit in the short term.



    However, in the medium term, clear signs that the US and world economies are slowing down (thus consuming less oil / fuel), and a persistent crude oil price below $60 per barrel, puts financial pressure on all of the 'alternative energy' companies profit margins. This is because the actual cost of producing ethanol or blends is in fact significantly higher than the price of an equal amount of fuel BTU's derived from oil as well as significantly higher than the price of (foreign produced) ethanol or blends derived from sugar cane.

    Clearly, the biggest users of diesel fuel (i.e. trucking / transportation companies) are showing a downward turn recently, which forecasts that their consumption of diesel fuel is or soon will be dropping. Of course, this may not really be applicable to VSE anyhow since they won't actually be producing any biodiesel to sell for quite some time.



    IMHO the biggest 'mover' for stock prices of companies like VSE will have little to do with VeraSun company policy and a lot to do with next tuesday's election, the results of which will contribute to whether or not existing US tariffs and import quotas against foreign produced ethanol and blends will be continued or increased, the results of which will contribute to whether or not US taxpayer funded federal subsidies to the US corn based ethanol and blend industry will be maintained or increased etc. Such gov't policies are critical to the future success or failure of companies like VSE, since in a 'free market' without US taxpayer funded subsidies they cannot turn a profit based on economic fundamentals alone. However, that doesn't mean that potential investors can't turn some major profits if they guess correctly on the future direction of US gov't policy towards taxpayer funded 'alternative energy' subsidies.

    ~
    Last edited by Melonie; 11-04-2006 at 04:20 AM.

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    Default Re: VeraSun moves toward diversification w/ biodiesel

    IMHO the biggest 'mover' for stock prices of companies like VSE will have little to do with VeraSun company policy and a lot to do with next tuesday's election
    I'm sure it will have some effect, particularly if the Dems get a majority because the party tends to be more friendly to alt. fuels in general. Also because current Repub. leadership is in bed with oil companies to put it mildly.

    ADM has begun to look beyond just corn based ethanol and it is my hope that VSE and other ethanol producers will do the same. The more things that we as a nation can make biodiesel or ethanol out of the better off we will be in lowering or even eliminating our dependence on foreign oil. Not to mention the positive effects non oil based energy usage would have on the environment.

    But to bring this post back full circle to the thread topic- VSE diversification is good news for those of us out here who are interested in that alt. fuel company because diversification means a "safer" investment than if VSE stayed a pure play ethanol company.

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    Default Re: VeraSun moves toward diversification w/ biodiesel

    The more things that we as a nation can make biodiesel or ethanol out of the better off we will be in lowering or even eliminating our dependence on foreign oil. Not to mention the positive effects non oil based energy usage would have on the environment.
    ^^^ unfortunately, this is where the real world facts don't match up with the 'good intentions'. Analysis has shown that there simply isn't enough productive US farmland available to produce enough bio based 'feedstock' for ethanol / biodiesel to satisfy even 20% of the current requirement for liquid fuels in the USA, even if ALL use of US farmland for food was converted to production of bio based 'feedstock's instead.


    "Land Constraints on U.S. Corn and Soybeans

    America’s total corn crop in 2005 was about 280 million metric tons, second only to the record 2004 crop of 300 million tons. In both those years, the U.S. produced about half of the world’s corn crop, and an even higher percentage of its corn exports. However, a recent University of Minnesota study says that if all the current output of U.S. corn and soybeans were put into biofuels, it would replace only 12 percent of our gasoline demand and 6 percent of our diesel needs.30

    Replacing 10 percent of U.S. gasoline with corn ethanol would require planting more than 55 million more acres of corn, on top of the 80 million acres of corn U.S. farmers are already planting. Where would we plant the additional corn? The only underused cropland in the U.S. is roughly 30 million acres of land enrolled in the Conservation Reserve—which is mostly too arid to grow corn.

    Efforts to force-feed the U.S. corn ethanol industry are likely to trigger lots of forest clearing, but U.S forestland is of substantially poorer quality than its corn land. Our corn is grown on our best land, while our forests grow on our worst. Forest land is steeper, dryer, poorly drained, or somehow lacking—and therefore low-yielding. If the land quality of the cleared forests is only half as high as the quality of the current corn land, the additional land required to displace 10 percent of our gasoline with corn ethanol could total 110 million acres.

    Privately owned forest on the farms of the nine major Corn Belt states totals only 80 million acres. Most of that is in the northern reaches of Minnesota, Wisconsin, and Michigan, which are too far north for corn to mature successfully. 31 Planting the additional corn land without energy-intensive nitrogen fertilizers would require doubling the land requirements yet again—to a staggering 220 million acres. Much of that land would be used to “grow nitrogen” as cattle forage or green manure crops.

    Some additional corn can be expected from the long-term trend of rising yields. U.S. corn production averaged 115 bushels per acre during 1986–1995 and 138 during 996–2004.32 Unfortunately, the very high oil prices that have triggered the oil-ethanol crisis have increased farmers’ costs for diesel fuel, fertilizer, and irrigation pumps. These costs are now suppressing high-yield corn production. Barring some unknown breakthrough in genetic engineering for corn, we can expect a slowing of the uptrend in corn yields.

    Meanwhile, the amount of corn going into ethanol has risen from less than 500,000 bushels in 1995 to nearly 2 million bushels projected for 2006—that’s 20 percent of the 2006 U.S. corn crop. Robert Wisner of Iowa State University warns that ethanol’s percentage of U.S. corn is likely to double again by 2012. Each additional bushel of corn bid into the ethanol plants will drive up the price of corn—and that of food. The price of feed corn for U.S. livestock could rise by 60 to 70 percent over the next two years, warns Wisner. 33 "(snip)

    ... it must be added that rising corn prices also will result in rising prices for all things derived from corn, from beef to beer to processed foods to US produced ethanol - in exchange for perhaps a 6-8% actual reduction in imported oil volume due to substitution of bio based fuels, and zero reduction in either oil based or bio based fuel prices !

    ... and as to the 'environmentally beneficial' aspect of large scale ethanol / biofuel production, again there is a lot of 'homework' yet to be done (or already well known but yet to be publicized, for whatever reason) ...

    (snip"Already, environmental pressure groups are raising red flags about the land costs of fuel from crops. At a recent conference in Europe, three environmental organizations—Birdlife International, European Environmental Bureau, and Transport & Environment— warned the European Commission that Europe had little land to be wasted on biofuels. The EU has announced a goal of replacing 5.75 percent of its fossil fuels with biofuels, but the environmental groups warned this could “consume” 14 to 27 percent of the region’s farmland.28

    “Europe must act now or biofuels could spell disaster for biodiversity worldwide…Already we are seeing European wildlife affected by biofuel production. The little bustard in France and the red kite in Germany are both examples of species being put in danger by the unmanaged conversion of land into biofuels production. The problems get even more serious when we consider the prospect of imports that are produced at the expense of the rainforest.”

    These groups specifically warn of imported palm oil produced on land cleared of species-rich tropical forest. They even want Europe to keep its current farmland set-aside measures, which date from the period of Europe’s “farm surpluses.” They argue that the set-aside land has become too crucial to the species of “the farmed landscape” to be sacrificed for tiny percentages of Europe’s transport fuel requirements."(snip)

    from


    So here is the 'real world' bottom line ... at best, because of the realities of the 'solar energy production per acre' available from the best US farmland, large scale development of biofuels in America could at best satisfy 10% of America's current demand for liquid fuels. Thus 90% of America's liquid fuel will still need to come from fossil fuel sources, either imported or domestic.

    Allocating US farmland to fuel production rather than food production will not only have food cost consequences within the USA (which will disproportionately affect the poor), but will have potentially massive consequences to much of the 'third world' who depend on low cost high volume US food exports to avoid starvation (with those exports abruptly ending as US crop production is diverted to fuel use). Starvation and social unrest stemming from an abrupt reduction in available 'third world' food supplies could be responsible for millions of additional deaths.

    From an environmental standpoint, high corn/soybean/whatever crop demand as biofuel 'feedstock' will encourage the clearing of privately owned US forest land, will encourage the use of 'marginal' farmland, will encourage much greater wholesale use of pesticides + fertilizer + irrigation, all of which have negative environmental consequences - beginning with the possibility of a replay of the 1930's 'dust bowl' - as well as creating large new 'stealth' energy consumption to produce additional pesticides and fertilizer (which will be met primarily by a 'stealth' increase in use of fossil fuels for electricity production), as well as creating further strains on already limited water resources.

    the 'tin foil hat' crowd would tell you that once the real world ramifications of large scale biofuel development in America become obvious, it will be viewed as a mistake by all parties from gov't to corporations to the American poor to environmentalists. Furthermore, it will be viewed as an expensive (in terms of tax funded subsidies) diversion of development money and a time wasting diversion of development efforts away from more practical and meaningful approaches to solving America's dependence on foreign oil (i.e. those that can ultimately contribute more than 10% to an actual solution).

    However, for the moment at least, biofuels appear to be the politically correct (and politically expedient) course of action. As long as that continues, corporations like VeraSun are very likely to profit from the tax funded subsidy money being poured into biofuels, as will their investors.
    ~
    Last edited by Melonie; 11-05-2006 at 06:30 PM.

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    Default Re: VeraSun moves toward diversification w/ biodiesel

    Well corn is not the end all- just a good place to start More methods that could create further diversification for alt fuel companies.





    pittsburghlive.com/x/tribune-review/trib/regional/s_434764.html

    Something that has alot of my interest these days is making energy from our garbage and other wastes.



    Call it PC if you wish, I prefer to call it investing in the future of energy.

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    Default Re: VeraSun moves toward diversification w/ biodiesel

    Again I don't want to get into a political discussion. However, switchgrass and other alternative plants are still limited by how much 'solar energy conversion potential' exists re north american farmland. Even if switchgrass turns out to be twice as efficient as corn or soybeans, you're still talking about a maximum production capacity that only meets 20% of current liquid fuel requirements. Yes it's better than the 10% maximum production capacity for ethanol, but it is far from a realistic solution.

    Same principle applies to recycling of 'green waste' in whatever form ... the maximum contribution could only amount to a tiny percentage of current liquid fuel requirements. Yes, it's better than nothing, but it is even less of a realistic solution than switchgrass.

    As the European Bio-Diesel people already know, in order to get really 'high energy content' raw material, they have to import 'tropical' crops i.e. canola oil, sugar cane etc. Unfortunately, there is very little farmland in the northern hemisphere that is both close enough to the equator to receive enough sunlight to support these types of plants, and also enough fresh water to support these plants. Therefore these types of 'high energy' plant products are typically grown in the southern hemisphere and exported ... where increased farm acreage to increase agricultural production typically comes at the expense of chopping down rain forest (as the European environmentalists pointed out)!

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    Default Re: VeraSun moves toward diversification w/ biodiesel

    no offense intended, but the 'PigMen' are already lining up at the gov't subsidy trough for ethanol companies ...



    what a difference an election makes !

    Surprisingly Halliburton shares haven't dropped much ... yet

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    Default Re: VeraSun moves toward diversification w/ biodiesel

    Quote Originally Posted by Melonie
    no offense intended, but the 'PigMen' are already lining up at the gov't subsidy trough for ethanol companies ...



    what a difference an election makes !

    Surprisingly Halliburton shares haven't dropped much ... yet
    Pig Men , eh ??? weird, but whatever. Moving on.

    I think it takes several weeks of trading to show much of anything in regards to how this election (and more to my point of this thread) on how diversification of VeraSun will affect their stock prices and compay profits.

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    Default Re: VeraSun moves toward diversification w/ biodiesel

    ^^^ well, VeraSun made their diversification announcement almost a week ago, and their stock price essentially went nowhere. Yesterday, after the first exit polls started pointing to a democratic majority, VeraSun's price started rising. This morning, when news media began announcing that democrats had indeed won a majority in both houses of congress, VeraSun's price took another big upward jump. If by nothing other than Occam's Razor, this clearly shows what really drives the economics / profitability of ethanol companies.

    the term 'Pig Men' was borrowed from financial commentator Russ Winter ...

    "Pig Men: The financial sphere, typically brokers, banks, Fed dealers. A representative list of the major players" can be found at - in other words, ivory tower financial houses that control billions in their customer accounts, guide billions more via their published stock recommendations etc. These guys are 'wired into' capitol hill, and clearly understand that the democrats support the existing tariffs and quotas on imported ethanol, as well as supporting existing and probably increased taxpayer funded subsidies to US corn farmers and ethanol distillers.

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