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Author: pencils2 Big gold star, 5000 posts Top Favorite Fools Feste Award Nominee! Old School Fool CAPS All Star SN Explorer 1 Mission Team Member Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 85  
Subject: Re: Pacific Ethanol, Nothing Behind It Date: 9/22/2006 11:39 AM
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Hi JBG,

I don't think taking the company's advice with a profitability forecast is a good idea, because these guys don't know how to manage money all that well, so a forecast like that should not be taken very seriously, in my opinion.

All PEIX is doing is building more debt and costs, two things they can't manage. People still don't address the fact that corn ethanol takes more energy more to produce than E85 can give back, and that's a major reason for me wondering how the heck people like the current corn ethanol idea. You can see it for yourself with pretty much any ethanol company out there: the costs can't be paid off easily. Maybe PEIX can get on their feet, but right now investors are expecting way, way too much, and I think even a 50% drop wouldn't bring PEIX to a reasonable value. There just isn't the potential with ethanol (at least the kind people are hyping left and right) that people think it has, and it's brought these ethanol companies to very high, and in my opinion, overvalued values.

And do people even realize that ethanol costs more money to run your vehicle? E85 gets crummy mileage, and the overall costs adds up to quite a bit more than gasoline, especially now that gasoline prices have dropped. In this case, the consumers aren't paying attention either. But even with this fact that has been shown many times, E85 still gets national attention, hyped, politicians use it to get "higher ratings", and farmers are now spending huge amounts of money and time to plant more corn. What happens if next year's corn crop doesn't do well (corn was one of the few crops to do okay this year)? Then you've got yourself farmers with huge amounts of debt and damages, ethanol plants with no corn (even though there pretty much isn't enough for them now), and small companies with huge amounts of debt because of rapid, careless expansion and spending. Too much is being relied on something that is very volatile -- a crop. I can't imagine relying on corn for fuel, but people think it's going to be huge in the future. I still haven't figured out why.

Now, you might be saying, "Sure, this could be true, but it is one step toward lowering our dependence on oil." Very true. Then why, may I ask, are billions going into E85 expansion? Why are farmers spending more time planting corn, why are billions being invested into it, and why are smaller companies ranking in the debt to build ethanol plants? It is being treated like anything but something small and "one step toward lower oil dependence." It's been overdone. Farmers have overdone it. Companies have overdone it. And as usual, the stock market caught on and now investors have overdone it.

Too much with too little to come out of it, that's the quickest way I can sum it up.

Best,

David K
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