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Veteran Contributor

Re: E-Plants Up Marketing Game

Ok marketeye, I have a question about Brazil.

 

Just in the last few days I remember a market analyst being questioned by a farm news anchor say that a PORT in Brazil had instituted a tax on American ethanol coming into Brazil. Have you heard this or am I totally wrong on what I thought I understood him to say. And if it is right how can a PORT have taxing power and why would they want to reduce movement of commodities as we all know a tax will get you less of something if you tax it. Port in alignment with Brazilian ethanol?

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Veteran Advisor

Re: E-Plants Up Marketing Game

Booked,

 

Sorry. I did not hear that or see it anywhere. Maybe if someone else along this thread did, they can shed some light on this. I know the Argentina farmers were conducting a strike at the ports. But, that's not what you are talking about, I know.

 

Thanks,

 

Mike

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Veteran Advisor

Re: E-Plants Up Marketing Game

Applies to state of Sao Paulo

 

Tariffs also played a role in Brazil’s frustrated efforts to expand its ethanol sector. For years, a tariff prevented Brazilian producers from fully exploiting the American market, but the U.S. Congress decided to end the 54 cent-per-gallon ethanol tax effective December 31, 2011. However, given Brazil’s production crunch, the move came late. In the meantime, American producers were at an advantage. Beginning in April 2010, the Brazilian government decided to eliminate a 20 percent tariff on ethanol imports, effective until the end of 2011. The tariff was extended in December. But Brazil decided to offer more protection to local producers. Now, U.S. producers are protesting an impending 25 percent tariff—which was temporarily deferred and will now go back into effect—on ethanol imports in São Paulo state. The state’s port of Santos is the hub for over 90 percent of ethanol imports in Brazil, meaning U.S. producers would lose out when the tariff is reinstated in March.

 

Entire Article: has several good data points about Brazil ethanol..

 

http://www.as-coa.org/articles/3972/Losing_Ground_to_Oil,_Brazilian_Ethanol_Struggles_to_Compete/

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Senior Advisor

Ha! I think maybe this analyst is pulling some of this out of ...... thin air.

My memory is not that some of those ethanol plant owners went broke because of buying high priced corn but, they hedged against higher prices yet, got caught when the market turned and couldn't get out of their positions and lost years of profit margin in a few days. It wasn't that they had no savvy. After all, they hired big time futures people to take car of risk and they were torched!

 

Speculating that ethanol producers are going to build massive storage to 'buy low, sell high' is somebody's pipe dream. And they're run by sophisticated marketers? And how much volume will have to be installed for storage at the capacity these plants churn through to make this cost effective?

 

Don't buy much of this explanation. Sounds like a floor trader's speculation.

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Veteran Advisor

Re: Mike...those were interesting comments

rayjenkins,

 

We have a nice discussion on a topic that I find hasn't been talked about much. It seems this idea of the ethanol plants finding new ways to compete in the "commercial grain buying" business is unfolding right before us. Having said that, I have engaged the analyst to reply to your comments. In his own words:

 

"He's careful in his response, as my thinking comes from futures experience and his the cash mindset. I simply note that in the years f 2008, 09, and 2011 all saw a growing season high followed by a sharp sell-off into the harvest months of Sept, Oct and even Dec. Only 2010 was the rally and break later. His reference to the old days of harvest pressure. The timing of seasonal trends, are on the fund timetable and no longer the commercials of past. Ethanol plants were heavy buyers of corn bought at the harvest break last year. Last year's high was priced in before July 1 and a $2.00 break into the Sept. harvest period . it was Sept. thru Dec. that ethanol plants over-blended, building inventory for future sale. It all came on the break.  It's clearly more volatile now but no less easy to see when not to buy and when the lows are in. Just look at my recommendations on futures timing. If I can figure it out by following the funds so can the ethanol producers. Just know who controls the trend and know how the funds work yearly and monthly. They have already done what we wrote on the fund monthly trading pattern, by rallying into the Jan. Crop Report then profit-taking after. In Feb., the same rally occurred, into the Feb USDA Report, then profit-taking and now look at this rally into the March report.  My 2012 grain outlook included a sharp break or low into late Jan. and by mid Feb. lows would be in and hold until summer highs occurred. That has happened and all on the index and trend-following funds schedules."

 

 

Mike

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Veteran Advisor

Re: Ha! I think maybe this analyst is pulling some of this out of ...... thin air.

Palouser,

 

You state it nicely. Those plants that might have lost years of profits in a matter of days may be used as examples for today's operating plants to do better. And what I'm saying, this analyst is hitting upon the idea that ethanol plants are having to alter their corn-buying and supply-securing tactics. He may not be exactly right on, but no doubt it's not business as usual with corn price prospects so high. E-plants operate no differently than other businesses in that buying supply at the lowest price and selling its finished product at the highest price is utopia. Using risk management skills to get you as close as possible to each end of that model is the key.

 

Mike

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Re: Mike...those were interesting comments

Futures speculators (like this analyst) have no idea how an ethanol plant manages risk.  Ethanol plant operators are not speculators and do not even attempt to front run the funds.  Most do not have the cash to be wrong.  Playing with the funds is a mugs game. 

 

Ethanol plants were not building inventory during sept thru dec to "over blend".  The cash ethanol market was at a huge backwardation.  No one carries inventory in a backwardated mode.  I'd fine a better source as this ones knowledge is pretty poor. 

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Veteran Advisor

Marketeye....

I have no doubt your analyst is good at what he does........but in the end, people have to decide what business they are really in...if you are an ethanol plant/processor your goal is capture margins and/or preserve and protect them......if you want to be a futures speculator you sure don't need a $200 myn facility to participate in that segement of the industry.....just get a couple of more desks and some capital.....

 

The margins in the dry mill ethanol business are not big enough to allow for many mis-steps in managing a futures position. I often notice quite a bit of turnover in the merchandising functions of the dry mill biz after extreme volatility....so maybe a lot of guys ARE trying to hit a home run.....but doubt they moving on because of success....

 

Ray J

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Veteran Advisor

Re: Marketeye....

Ray,

 

Thanks for taking part in the discussion.

 

 

Mike

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Senior Advisor

Re: Marketeye....

I think farmers are suffering from the same affliction. They need to decide whether  they are farmer marketers or speculators.

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