Stocks to Watch – Pacific Ethanol, Inc. (Nasdaq CM: PEIX )

Futures increased as corn rose up on concern that hot, dry weather blanketing South America is damaging crops and will lead to increased U.S. exports. Ethanol in the U.S. is made mostly from the ubiquitous grain. The profit from turning a bushel of corn into the popular bio-fuel is referred to as the crush margin. Pay close attention to companies in the bio-fuel market in 2012.

Pacific Ethanol, Inc. may be the leading marketer and producer of low-carbon renewable fuels within the Western United States at this time. The Volumetric Ethanol Excise Tax Credit has U.S. ethanol stocks in high volatility during the third quarter as investors brace for the expiration of the annual tax credit. The subsidy is worth 45 cents per gallon of ethanol or 4.5 cents on a gallon of fuel pumped at local gas pumps.

The U.S. ethanol industry has been benefiting from higher costs and production shortfalls in Europe, where output is about 165 million gallons (625 million liters) short of the 2.45 billion gallons that drivers are mandated to use this year, according to Bloomberg New Energy Finance.

Many European competitors pursue the argument that current federal and state incentives make the imported ethanol unfairly cheap in their markets. The European Commission recently launched an anti-dumping investigation of U.S. ethanol that could result in duties being imposed on the product. This threat is long standing but with the current economic uncertainty in Europe at this time there is no telling if they might have the will to act on a threat.

Pacific Ethanol, Inc. has closed two transactions that were introduced in December 2011. The company closed its $4.6 million purchase of an additional 7% ownership interest in New PE Holdco LLC. This now increases its total ownership interest to 34% of New PE Holdco LLC. The Company operates, the four Pacific Ethanol production facilities. Pacific Ethanol also closed an $8.0 million private placement of 7,625,000 shares of common stock and warrants to order as many as 4,956,250 shares of common stock in December 2011.

The locations in operation are situated in Boardman, Oregon, Burley, Idaho and Stockton, California.  A facility located in Madera, California is currently idle. The facilities are strategically located near their fuel and feed customers; this offers considerable reductions in transportation costs and other logistical advantages for the company. Pacific Ethanol’s subsidiary, Kinergy Marketing LLC, sells ethanol from Pacific Ethanol’s managed plants and from other third-party production facilities.

Pacific Ethanol, Inc.’s clients are integrated oil companies and gasoline entrepreneurs who blend ethanol into gasoline. It supplies ethanol to the clients either from the own ethanol production facilities situated inside the regions it serves, or with ethanol acquired in large quantities using their company producers. The Company’s four ethanol facilities, which produce ethanol and it is co-items include Miracle Valley, Columbia, Stockton and Mader.

The Company is the owner of a 42% interest in Front Range, which is the owner of a facility situated in Windsor, Colorado, with annual production capacity as high as 50 million gallons.

Pacific Ethanol, Inc. (Nasdaq CM: PEIX ) 52wk Range: 0.25 – 7.98 Market Cap: 70.93M