Haxo Bioenergy http://haxobioenergy.posterous.com Renewable, Sustainable, Low Carbon Biofuels and Clean Energy Company posterous.com Fri, 09 Apr 2010 04:20:00 -0700 Ethanol - ETBE (Week Report) http://haxobioenergy.posterous.com/ethanol-etbe-week-report-8 http://haxobioenergy.posterous.com/ethanol-etbe-week-report-8


ETBE ETHANOL – T2 prices remained at around €440-445/cu m FOB Rdam for prompt delivery, steady over the course of the week, with T2 trading more than once at just above €440 for April delivery on Tuesday. A T2 tender from an oil major for up to 15,000mt/month for Q410 delivery attracted some attention just before the Easter break, with traders tentatively assessing likely prices at about €500/cu m FOB Rdam. Results are expected today.

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Wed, 07 Apr 2010 10:34:00 -0700 Ethanol - Latin America ( Week Report ) http://haxobioenergy.posterous.com/ethanol-latin-america-week-report-7 http://haxobioenergy.posterous.com/ethanol-latin-america-week-report-7

LATIN America – Increasing demand ahead of the holidays in Brazil helped reverse the recent price downturn and further rain over the long weekend added to the upward momentum. Domestic hydrous prices gained about R$80-100/cu m and are currently sitting around R$1,000/cu m ex-mill Ribeirao Preto (with taxes). Gains of up to R$150/cu m in anhydrous offers over the past week have taken them to R$1,050/cu m (same basis). There are reports of long lines of trucks to load ethanol at mills after strong pre-holiday demand and a return to competitiveness in major regions boosted demand for ethanol (1st graph). However, heavy rainfall in major growing regions has interrupted ethanol production and reduced already-tight availability. These higher domestic values have fed into indicative values for exports, although there is little prospect of substantial physical trading due to a further widening of the arbitrage. Notional bids for hydrous have been raised by $40/cu m to $480/cu m FOB Santos but offers are $90/cu m higher at $550/cu m. Anhydrous ANP bids are quoted in a notional bid/offer spread of $500-635/cu m FOB Santos with the margin widening from $70/cu m last week to $135/cu m this week. Similarly, bids for EU Grade Anhydrous rose $30/cu m to $530/cu m but offers jumped $70/cu m to $650/cu m.

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Sun, 04 Apr 2010 18:55:00 -0700 Ethanol - ETBE Report ( Week Report) http://haxobioenergy.posterous.com/ethanol-etbe-report-week-report http://haxobioenergy.posterous.com/ethanol-etbe-report-week-report

ETBE – T1 prices are steady-to-firm, at around US$507/cu m FOB Rdam (traded on Tuesday for April) while the T2 sector remains under pressure. T1 markets are firmer thanks to stronger ppt/April buying interest which has emerged in the past week, and supply is also not as long as some may have anticipated. Expectations that an excess of US material would hit the market in March haven’t materialised and there have been rumours of washouts and/or of US material being diverted to other more profitable locations e.g. Asia, possibly as industrial grade ethanol. Traders tend to suggest that this “diverted” volume is limited to just a few cargoes. There is still some interest in the US to EU arbitrage, due to the current firmer T1 outlook and recent fairly soft US domestic pricing. We expect that stricter sustainability requirements due in place in Europe in 2H10 may however dampen any EU buying interest and limit any arb even further.

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Wed, 31 Mar 2010 08:13:25 -0700 Ethanol - Latin America ( Week Report ) http://haxobioenergy.posterous.com/ethanol-latin-america-week-report-6 http://haxobioenergy.posterous.com/ethanol-latin-america-week-report-6

Latin America – Brazil’s domestic prices fell further last week but wet weather and increased demand helped arrest the decline and may point to a firming in values going forward. Only a small proportion of mills had begun crushing the 2010/11 crop and fine weather had allowed them to make excellent progress prior to the weekend. However, heavy rainfall across the region has disrupted operations and interrupted supplies. Renewed demand from distributors, who are beginning to see some recovery in hydrous demand now that prices have become competitive in six or more states, is also provided support. Nevertheless, Hydrous traded at about R$900/cu m ex-mill Ribeirao Preto (with taxes), down R$80/cu m on the week with offers at R$910-920/cu m. Anhydrous offers fell by a similar margin to R$920/cu m (same basis). This has allowed further discounting on export markets with hydrous offers slipping $50/cu m to $460/cu m FOB Santos while bids dropped $40/cu m to $440/cu m. Anhydrous ANP values are now assessed in a $480-600/cu m FOB Santos bid /offer range, down $60/cu m. EU Grade Anhydrous bids fell $50/cu m to $500/cu m FOB Santos while offers slipped $60/cu m to $580/cu m.

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Fri, 12 Mar 2010 16:56:19 -0800 Ethanol - Latin America (Week Report) http://haxobioenergy.posterous.com/ethanol-latin-america-week-report-5 http://haxobioenergy.posterous.com/ethanol-latin-america-week-report-5

Latin America – Ex-mill prices in Brazil continue to fall on weak demand, but the retail market appears to be lagging behind with values there little changed over the week. Hydrous traded yesterday at R$1,050/cu m ex-mill Ribeirao Preto, down as much at R$150/cu m on the previous week. Anhydrous prices suffered a similar fate with values falling R$140/cu m to R$1,080/cu m (same basis). However, the drop in producer prices has yet to flow through to retail markets (1st graph) and ethanol still remains uncompetitive in all but two states so the drop in prices has not yet stimulated a recovery in domestic demand. Unica has recently attempted draw attention to the issue and has called on the government to provide incentives for producer stockpiling to ensure supplies in the inter-harvest period. Indicative export values dropped sharply again this week, with the fall in domestic values accentuated by a stronger Real. Hydrous ANP offers fell $50/cu m to $550/cu m FOB Santos but bids were steady at $480/cu m. Indicative anhydrous ANP offers dropped $70/cu m to $650/cu m but still remain distant from bids which fell another $10/cu m to $500/cu m. EU grade Anhydrous is indicated in a $600-700/cu m FOB Santos bid/offer range with bids and offers both down $50/cu m.

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Thu, 04 Mar 2010 03:18:24 -0800 Ethanol - ETBE (Week Report) http://haxobioenergy.posterous.com/ethanol-etbe-week-report-6 http://haxobioenergy.posterous.com/ethanol-etbe-week-report-6

ETHANOL – T2 markets suffered a drop early this week, while the T1 market has endured choppy conditions, bouncing back to US$595-600/cu m mid last week, but weakening to the US$570s-580s early this week. Two-tier pricing continues to emerge however, as US$598-600 was also reportedly booked Monday possibly for Brazilian origin, with lower offers and trades in the US$570s booked Tuesday heard for “any origin” T1. Greater availability is the culprit – with more US material suggested to be a driver. The drop in T2 seems to be due largely to fallout from weaker T1 values, and also adequate supply; €499/cu m FOB Rdam was heard traded on Monday. We also heard €499 as a DDU (delivered duty paid) Q2 offer level being shown to consumers. Press reports said Ensus has produced and is delivering its first commercial volumes of ethanol this week. EU producers are no doubt concerned at the dip below the psychological €500 level, which threatens to get painfully close to production costs, despite ongoing relatively low grain feedstock costs.

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Wed, 03 Mar 2010 16:10:47 -0800 Ethanol - Latin America (Week Report) http://haxobioenergy.posterous.com/ethanol-latin-america-week-report-4 http://haxobioenergy.posterous.com/ethanol-latin-america-week-report-4

Latin America – Brazil’s domestic prices continued to fall this week with reduced demand and some additional inter-harvest production alleviating the tight stocks position. Hydrous prices traded as low as R$1,150/cu m ex-mill Riberao Preto (with taxes) yesterday with offers currently pegged at R$1,200/cu m, down another R$50/cu m from last week. Anhydrous offers are R$40/cu m lower at R$1,220/cu m (same basis). Anhydrous supplies are a little tighter than those for hydrous and analysts suspect that there will be a greater focus on hydrous production in the early part of the 2010/11 crush. The large buying group, Sindicom, were absent from the market last week, contributing to the drop in values. Export values have dropped in line with domestic price falls. The notional bid/offer range for Hydrous ANP is now cast at $480-600/cu m FOB Santos, down $35/cu m on last week. Anhydrous ANP prices have dropped by $30/cu m and are now seen in an indicative $510-720/cu m band while EU Grade Anhydrous prices have fallen by a similar margin and are now priced at $650-750/cu m.

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Fri, 26 Feb 2010 09:38:12 -0800 Ethanol - ETBE (Week Report) http://haxobioenergy.posterous.com/ethanol-etbe-week-report-5 http://haxobioenergy.posterous.com/ethanol-etbe-week-report-5

ETBE ETHANOL – T2 has shed €5-10 on the week, which compares favourably to the much larger losses seen in the T1 sector this week. T1 slumped by US$55-70 on the week, with the fall in values attributed mostly to the presence of and increased offers of US material in Europe. It looks like even some traditional Brazilian-only buyers in Europe have been unable to resist the competitive prices for US material – for example, we are seeing some volumes going into the UK market (including a 10,000 cu m lot in February). The Netherlands is also thought to be using some product in its domestic market, and some consumption of US ethanol for ETBE production in Northern Europe is likely.

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Wed, 24 Feb 2010 11:03:33 -0800 Ethanol - Latin America (Week Report) http://haxobioenergy.posterous.com/ethanol-latin-america-week-report-3 http://haxobioenergy.posterous.com/ethanol-latin-america-week-report-3

Latin America – Improved weather and weak hydrous demand continue to impact on Brazil’s domestic ethanol prices. Recent warm, dry weather has given those millers who decided to continue through the inter-harvest period some breathing space and also improved the prospects for an early start to the 2010/11 crush. Hydrous prices remain uncompetitive in the most states, supporting increased gasoline C use at the expense of hydrous. Petrobras has indicated that Brazilian gasoline demand increased 15-20% so far in 2010, compared to the previous year. Hydrous offers this week have dropped to R$1,290/cu m ex-mill Ribeirao Preto (with taxes) but trades have occurred as low as R$1,250/cu m, down R$50/cu m from last week. Offers of anhydrous have dropped to R$1,300/cu m, down R$30/cu m. Export offers have fallen as a result of lower domestic prices and despite a firmer Real. Export hydrous prices are now seen in a notional bid/offer spread of $515-635/cu m FOB Santos, down $15/cu m on both ends of the range. Indicative values for Anhydrous ANP fell $10/cu m to $540-750/cu m while prices for EU Grade Anhydrous are down by a similar margin, now pegged in a $680-780/cu m FOB Santos band

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Thu, 18 Feb 2010 13:03:00 -0800 Decisions Are More Important Than Results http://haxobioenergy.posterous.com/decisions-are-more-important-than-results http://haxobioenergy.posterous.com/decisions-are-more-important-than-results

Managing for results — pay for performance schemes and the like — are fundamentally flawed if that is the only criterion for evaluating managers. We have observed more than the average share of businesses, managers and employees, and we have serious doubts about this almost universal approach to managing firms. Far better, we believe, to reward people for their decisions and decision-making processes. Our argument is based on six assertions.

1. Results are irrelevant as a measure of decision quality.

People, including managers and business leaders, typically equate the quality of a decision with the quality of the result. When people observe a good result, they conclude that they made a good decision. Likewise, when a bad result is observed, people conclude that a bad decision was made. This is not true. Decisions and results are two different things. Time elapses between a decision and the realisation of its result. Decisions are made at a specific moment in time; afterwards, people implement these decisions, and the result is observed in the future. The future is uncertain: there are no facts about the future, and nobody has a crystal ball. In the future, events can happen that managers and organisations cannot control. Also, events can happen that managers could not foresee. Such events can cause good decisions to have a bad result — and vice versa. Therefore, the quality of the result is not an indicator of decision quality, and the result is irrelevant as a measure of decision (and execution) quality

2. Results don’t necessarily reflect a high-quality process.

Decision quality is measured at the moment someone makes a decision, but decision making is a process. To determine quality, in general, we need a criterion. So it is for the quality of decisions. There are thousands of criteria in business: in the Finance area, managers use profit, cost, return on investment, cash flow and price/earnings ratios. In Marketing, the criteria include sales volumes, market share and customer satisfaction. Go to Operations and one finds inventory levels, efficiency and production quality. Walk to Human Resources and one finds employee satisfaction, turnover and organisational morale. In sum, people make decisions in all functional areas in business; but the underlying process is the same. That’s why decision making is a generic leadership skill.

The ultimate criterion for good decision making is tied to three critical questions:

  • What are we trying to achieve with this decision? (the criteria)
  • What can we feasibly do? (the alternatives)
  • What do we have to watch out for? (the consequences)

The answers to these questions will reveal the alternatives, actions and choices that the decision makers have — and, on the third question, the answer leads us to specify the consequences of our possible alternatives. Good decision making also requires relevant and useful information.

Deciding is (1) valuing your alternatives at the moment you have them (2) on the criteria you have identified and (3) with the best information available at that time. Value is the only justification for your actions in business. The answers to the questions on criteria, alternatives and consequences come from the decision makers’ knowledge, understanding, experience and intuition about the business issues. The process of decision making, therefore, is a mechanism to leverage the collective knowledge, experience and intuition of a group, team or organisation. It allows this intuition to be discussed, challenged and refined. Intuition is at the bottom of the decision-making pyramid, for it is the foundation. 

The experience of people in a business is always relative. In some situations, a person making a decision has more experience than others in the workplace; in other situations, less. Therefore, good decision making requires managers to be humble, recognising the context and ascertaining whether their knowledge, experience and intuition applies more or less. Good decision making starts by recognising that there is no monopoly on wisdom; we can all learn something from each other. The process of decision making forces us to be reflective, analytical. We all know we have to use some process while making decisions. However, how many times do people really do this consciously? Typically, both managers and employees would rather act first then reflect later (if at all).

The process of decision making is critically important and essentially about effective communication, which is reflected in the three questions noted above. As a result of effective communication, the parties involved develop a shared understanding of the issues they are dealing with. This ultimately leads to joint commitment to action, which means that, even if a person’s favourite alternative has not been chosen at the end of a decision-making process — by virtue of having participated in a good process, there is a much greater chance that he or she will still support the alternative decided upon.

3. Using results as a measure of decision quality leads to organisational crises, even bankruptcies.

It is wrong to use a result as a criterion for a decision-making process. Assume a great business opportunity arises in which a manager makes a good decision but experiences a bad result because of some outside uncontrollable and/or unforeseen event. This manager will typically not be promoted and could even be fired, after being blamed for the bad result. By this action, the boss has fired a good decision maker, but the boss has done something much worse to the organisation. Eventually, the terminated manager’s colleagues — his team, his business division and, in time, the whole organisation — will soon realise that he or she was unjustly held accountable for the bad result, that the fired manager was blamed and punished unjustly. From that point forward, who else in this organisation will want to take initiatives, make decisions, experiment and innovate? No one. People will realise that, even when they make a good decision, a bad result will result in blame or termination, irrespective of the quality of the decision-making process.

A blame culture triggered by bad results stifles experimentation, innovation or trial and error. If leaders do not tolerate failure and error in our business innovations, they will kill the prospect of anyone taking any initiative. Since business activity is the primary engine for personal income growth, value creation and societal economic development, an organisational culture built on blame and punishment has implications beyond the boundaries of our any one business. Taken to national proportions, a blaming culture inhibits societal growth, development and evolution. Managing for results leads to crisis, at the least; it can lead to bankruptcy, at the worst.

4. Being accountable only for results is not the right standard for performance.

Of course, people must be held accountable for what they do in a business context; but they need to be held accountable for the right things. They need to be held accountable for things under their control, that is, operating with a good process of high quality. They should not be held accountable for uncontrollable events.

Conversely, if business leaders only want good results, it is easy to understand that, ultimately, any process to achieve good results will become acceptable — even an illegal process. This is yet another way in which managing for results can become the origin of crisis and bankruptcy. A manager who achieves an excellent result but, in the process of achieving it, has demotivated his team is clearly not a good leader.

Think of the current economic crisis. Sub-prime mortgages were driven by banks wanting to do more business without carefully considering creditworthiness, the risks involved in borrowers not being able to repay their mortgages. A few years ago, almost anybody could get a mortgage. And banks repackaged thousands of these unsafe loans into CDOs (collateralised debt obligations) to sell as a bundle of bad loans to investors — again, doing more and more business without looking at the quality of the transactions, that is, the inherent risk associated with such business.

Tools such as Management by Objectives and Balanced Scorecards are, when used properly, helpful. Such management tools help people review and better understand the criteria involved in the process of decision making. Their proper use, then, is for setting objectives, criteria and measuring progress on them. However, such tools should never be used for evaluating people working towards a set of objectives.

5. It’s not enough to measure organisational leaders on results; how they achieved them is equally important.

Of course, results are not irrelevant for organisations and their leaders. A company that always makes good decisions and is always excellent at execution — but, too often, yields bad results — will go bankrupt. The CEO is ultimately responsible for the good results for the organisation, a responsibility to the shareholders who demand good results. But this question must also be considered: what can companies do to achieve good results?

Companies typically do two things to achieve, on average, better results. First, they implement a good process. Managers can learn to become better business executives. They can learn the process of decision making, learn how to be better at execution and build their business via the knowledge, experience and informed intuition that is inherent in decision making and execution. Out of this, managers will find that they are becoming better, more thoughtful business leaders — more aware and better informed about what they are doing.

Second, companies manage the risk inherent in any single business project, division, product, market, service and delivery channel. Diversification is a way of managing risk inherent in single projects. By having multiple products, markets (on a global scale), services and delivery channels, an organisation diversifies its risk. Some projects and businesses will be successful; others might be less successful; still others might fail.

That is why the CEO can (and must) be held responsible for the overall results of the enterprise. CEOs oversee a sprawling and usually complex organisation, and their personal career risk is diversified as a result. That is, they are judged by the average of all (both good and bad) results inside the corporation. However, going down the organisational hierarchical chain, those managing the divisions, departments, teams and projects become less and less diversified. It is a bad CEO who enforces the requirement for everyone in the company to deliver good results all the time.

But isn’t that exactly what many CEOs have been doing? That is, they desired universal good results and, therefore, they have delegated this responsibility to everybody else in their organisations. This is unreasonable and ineffective. Down the organisational hierarchy, many managers are in charge of single products, single markets, a single delivery channel and/or a single service. As a consequence, they are exposed to the inherent risk associated with these single business projects. Many CEOs have not understood this very well. It is a bad CEO who does not shield his or her managers from the risk inherent in their less-diversified projects and who do not recognize quality of process as being more important than occasional bad results.

6. Being compensated only for results doesn’t measure one’s true contributions to the organisation.

Managers traditionally get bonuses for good results. Corporate compensation systems are built around achieving good results. This is simply wrong. It is wrong to use a financial bonus to motivate and encourage managers to achieve good results, if that is the only reward they can earn. If a bonus is used to reward good results, it implies that managers are evaluated only on their results; and, ultimately, managers can (and have!) found themselves doing anything to achieve good results so as not to forfeit a bonus. Managers have even been found to engage in illegal activities in order to make the results required to earn a bonus.

An important note: we are not opposed to bonuses. The proper use of a bonus is for enjoyment — collective organisational enjoyment — of the good fortunes of the organisation if good results happen. Any other use of a bonus is misplaced. However, good managers will, in the long run, yield good results by adhering to a good process more often than bad managers using a poorly thought-through or malevolent process.

It is, of course, possible that bad managers using wrong processes will sometimes enjoy good results. But their luck will run out eventually. Therefore, in the long run, it is necessary for organisations to evaluate the quality of a manager’s decision-making process over the span of his or her career. Over time, managers will make many decisions and take many actions. In this sense, the cumulative body of their decisions and actions can be seen as diversified. If they use a good process for making decisions, then, on average, they will experience good results more often than bad results. Organisations should therefore reward on the longer-term performance achievements of managers. This can be done by many means, such as promotions to levels of higher responsibility or authority as well as base salary increases. Ultimately, managerial career progress and base salaries should reflect a company’s commitment to the overall quality of a manager’s contributions to the organisation. It may seem controversial, but we firmly believe that even managers with bad results should be rewarded — if they have used a good decision-making process.

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Thu, 18 Feb 2010 07:32:37 -0800 Ethanol - ETBE (Week Report) http://haxobioenergy.posterous.com/ethanol-etbe-week-report-4 http://haxobioenergy.posterous.com/ethanol-etbe-week-report-4

ETHANOL – T2 prices have seen some deterioration, moving towards €530, while the T1 sector saw a sharp drop in prices this week – down from circa US$690 one week ago to US$635-660 FOB Rdam. The main culprit is an increase in offers/availability, and some players also suggest that significant amount of imports from the US could be unsold. EU producers however report that they are well-balanced and are seeing good demand. Generally lower grain prices should be keeping EU production economics in fairly good shape, even with T2 prices in the low €500s. Overall activity has been slow this week due to traders’ attendance at IP events in London and the Brazilian holiday period. The spread between T2 and T1 for denatured markets (plus €102 duties) remains pretty similar to last week, despite the drop in spot prices.

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Thu, 11 Feb 2010 12:30:07 -0800 Ethanol - ETBE (Week Report) http://haxobioenergy.posterous.com/ethanol-etbe-week-report-3 http://haxobioenergy.posterous.com/ethanol-etbe-week-report-3

ETHANOL – The picture this week is one of downward pressure across the board, with ethanol partly tracking the softening in energy prices. T1 prices surged through week to reach fresh record highs of US$720 on Thursday (eclipsing previous highs of US$715 in December 2008) - but values began to collapse on Tuesday, falling back to US$685-690. March T1 is heard well below that, at around US$640. The inflow of US material into Europe is one element having an effect on prices – perhaps earlier than some expected. Fresh offers of US material were heard this week – a tender to supply 35,000-50,000 cu m EN specs US origin ethanol for delivery March was out, with bids due in by close of business on Tuesday.

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Wed, 10 Feb 2010 04:47:22 -0800 Ethanol - Latin America (Week Report) http://haxobioenergy.posterous.com/ethanol-latin-america-week-report-2 http://haxobioenergy.posterous.com/ethanol-latin-america-week-report-2

LATIN America – Domestic hydrous prices have eased in CS Brazil in recent days after buyers pulled back from the market to re-assess their stocks. Hydrous values have now dropped back into a bid/offer range of R$1,340-1,360/cu m ex-mill Ribeirao Preto and some smaller volumes traded within that range yesterday. Yesterday’s values are about R$100/cu m off those of last week. Some finer weather in CS Brazil during late January and early February may be boosting supplies from those mills that decided to crush through the inter-harvest period and lower values could also be reflecting the impact on demand of higher prices for hydrous. Anhydrous offers have slipped R$40/cu m to R$1,360-1,370/cu m and are now offered at slightly higher prices than hydrous for the first time since the start of the year. A weaker Real and the softer domestic market values have helped lower export offers but bids have also followed the market lower. Hydrous ANP is currently assessed in a notional bid/offer range of $580-720/cu m FOB Santos, down $20/cu m on either end of the range. Indicative Anhydrous ANP values have fallen by the same margin and are now pegged in a $590-805/cu m FOB Santos band. Our assessments of offers for EU Grade Anhydrous have dropped $30/cu m to $820/cu m but bids have dropped $40/cu m to $730/cu m.

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Thu, 04 Feb 2010 12:15:30 -0800 Ethanol - ETBE (Week Report) http://haxobioenergy.posterous.com/ethanol-etbe-week-report-2 http://haxobioenergy.posterous.com/ethanol-etbe-week-report-2


ETHANOL – T1 prices have had a choppy week, moving down into the US$660s late last week, but rising to US$690 on Monday and breaking the US$700 barrier on Tuesday. T2 Rdam activity has been quiet in recent days, with €570 still offered but no firm bids heard, while ely March offer ideas are lower at €555. Notional buy interest is pegged at €550. The rise in T1 as well as the Euro’s recent weakness against the US dollar in the past week has put T2 firmly back into competitive territory versus T1 values for denatured markets (T1 plus €102/cu m import duties).

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Mon, 01 Feb 2010 09:24:36 -0800 Ethanol - Understanding the Market and Prices http://haxobioenergy.posterous.com/ethanol-understanding-the-market-and-prices http://haxobioenergy.posterous.com/ethanol-understanding-the-market-and-prices

A key feature of commodities is their uncontrolled price fluctuations. Except in the case of petroleum products –– which in Brazil are a monopoly with government-controlled prices –– all other commodities suffer from permanent price volatility.

This is the case with fuel ethanol, where prices fluctuate freely with changes in supply and demand. It is true that in the past, the Brazilian government controlled the prices of sugar, ethanol and many other commodities. However, there is broad consensus that deregulation in the 1990s produced significant efficiency gains and production cost reductions that benefit all consumers.

Following the rapid growth of flex-fuel vehicles since 2003, which now account for almost 40% of the total car fleet, ethanol surpassed gasoline in consumer preference and became a remarkable example of a successful effort to replace oil dependency and combat global warming. In the past three years, thanks to the expansion of ethanol production and competitive prices, combined with the recognized environmental value of the fuel, ethanol consumption grew 78%, compared to only 3% for gasoline.

Confirming the rule of volatility, certain specific factors led to an increase in ethanol prices near the end of the current sugarcane harvest. The first factor, which has been widely reported but not clearly explained, is the global rise in sugar prices caused by poor harvests in key producing countries, among them the top two producers in the world, Brazil and India. In fact, Brazilian sugarcane mills have some flexibility between producing sugar or ethanol, but this “migration” is limited by the absence of sugar factories in most new units and a lack of spare capacity in older ones.

Although it hit the industry hard, the key factor driving high ethanol prices in Brazil –– the global financial crisis –– has received little attention. In the first half of 2009, a lack of liquidity in the credit market and high debt levels forced many sugarcane mills to flood the market with large amounts of ethanol at depressed prices just to maintain cash flow. These low prices led consumption to increase by nearly 30% over the same period in 2008, an extraordinary level in the fuels market. Then, excessive rains in the second half of 2009 caused mills to stop processing sugarcane for twice the usual period, compromising projected production and stocks of ethanol for the inter-harvest period, which lasts from December to April.

One could argue that ethanol is today an example of well functioning market forces generating price adjustments. The main pillar of this system is the flex-fuel vehicle, which allows consumers to choose their fuel at the pump according to price and environmental benefits. No country in the world offers this choice in such broad and attractive terms for consumers. In making fuel choices, the drivers of flex-fuel vehicles lead markets to adjust. Therefore, the Brazilian experience is a national technological success, from the competitiveness of sugarcane as a feedstock for ethanol to the efficiency of flex-fuel engines that allow market-based price formation to produce economic, social, environmental and public health benefits.

However, in at least two vital areas improvements are on the way. First, credit availability is going to help in the creation of market-regulating stocks, a feature that did not produce the necessary results in 2009 because of weak corporate balance sheets and a lack of credit availability. Second, the recent decision by the Brazilian Petroleum, Natural Gas, and Biofuels Agency (ANP, in Portuguese) to allow ethanol trading companies to operate in the fuels market, a path until now unfortunately forbidden by existing rules, should improve the way the market functions. Price volatility will continue to exist, because unlike oil, sugarcane production depends on Mother Nature. However, volatility can decrease with the presence of new agents and financing, storage and trading mechanisms.

Another important variable is foreign trade. The Brazilian government and industry are engaged in a broad campaign to consolidate ethanol as a global commodity. This could bring additional investments, jobs, foreign exchange earnings and gains for the planet in terms of climate change. The problem is that the ethanol market is highly protected around the world. The United States is beginning to recognize the benefits of sugarcane ethanol in comparison to other feedstocks, and the tariff it levies on imported ethanol is currently being debated by the U.S. Congress and could be dropped at the end of the year.

If we want to consolidate ethanol as a global energy alternative, it is essential that tariff and non-tariff protection barriers be eliminated, including those imposed by Brazil, which has its own 20% duty on imported ethanol – a move that has been the subject of considerable criticism abroad. Some groups in the U.S. correctly argue that it is incoherent for Brazil to ask for greater trade liberalization and at the same time protect its own market with a high import tariff. Free trade is not a one-way street. If Brazil has the most competitive ethanol industry in the world, why not set the good example that entitles us to call for the opening of the North American market, by far the largest consumer market today?

In summary, ethanol’s 35-year old history has been a bumpy one: from intervention to free market, the development of ethanol-only vehicles, back to gasoline-powered cars, to the innovation of flex-fuel vehicles. Today we have motorcycles, bioelectricity and bioplastics. In the future, we see buses, trucks, airplanes, cane-based chemicals and hydrocarbons. Despite this year’s hiccup, caused by the financial crisis and the weather, it is essential to continuously improve market conditions and stimulate technological change, competitiveness and sustainability.

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Sun, 31 Jan 2010 10:40:46 -0800 Ethanol ETBE (Week Report) http://haxobioenergy.posterous.com/ethanol-etbe-week-report-1 http://haxobioenergy.posterous.com/ethanol-etbe-week-report-1

ETHANOL – The T1 sector has come under downward pressure in recent days, with spot booked close to US$675 on Monday but with offersrs slipping to the US$660s/cu m on Tuesday, matched by a lack of bids. T2 markets are fairly steady but bids have also thinned out in recent days, while offers dropped to €570 on Tuesday. We have seen some ongoing price discussions for US material and heard that several shipments have been booked, including a 10,000 mt early February shipment for ARA (with Finland rumoured as a possible alternative destination), as well as a 4,000 mt late January shipment, due also for Rotterdam. A new source of T2 status ethanol is on the market, with Sudan due to deliver its first export cargo of ethanol to Europe in January. More availability is anticipated in the coming months.

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Tue, 26 Jan 2010 04:16:29 -0800 Pre-salt: What now? http://haxobioenergy.posterous.com/pre-salt-what-now http://haxobioenergy.posterous.com/pre-salt-what-now

This event marked an important moment for the Brazilian oil industry, because recent discoveries in the world oil scene have been rare and also because Brazil has always carried the title of eternal latecomer in the race for oil. The Brazilian oil industry was, until then, a classic case of sudden success but with limited potential.

So when their country arrived on the pre-salt scene, Brazilians began to dream of fabulous trajectories of economic development financed by the excessive reserves that surely rested under the water, just waiting to be converted to a new “oil El Dorado.” Brazil would enter the select club of oil exporting countries, and the benefits of being part of this club would be many, including the possibility of obtaining abundant oil rents and participating in OPEC.

But the entry into that club would not be without costs. First, because inevitably the process is slowed by the technological difficulties of producing oil, no matter how abundant, at a depth of several thousand meters and in some places more than 200 miles offshore. Second, because it remains unknown in which direction the world energy grid will go and so it is unclear whether Brazil could recoup the hundreds of billions of dollars spent on pre-salt exploration and production. And certainly in many countries oil hasn’t been the blessing to the economy that one would expect. Many countries that export oil or other natural resources have in the past suffered from “Dutch disease,” when the inflow of foreign currency raises the exchange rate and makes the rest of the economy less competitive. This is true in Venezuela and could easily be the case in Rio de Janeiro, which has experienced a downward economic trend since it ceased to be the nation’s capital 60 years ago. (To mitigate these risks, a series of measures such as taxes on imports or funds of oil reserves would need to be adopted.) Finally, there is the high political cost that the discussion at the federal regulatory level invariably brings to a country like Brazil, where often the direction of the economy is decided behind the scenes and does not always follow the most honest negotiation procedures.

Clearly, mere entry into the “oil club” would not magically yield economic development. On the contrary, it would be a long and arduous road. It was surely in this context of elevated costs that the prospect of pre-salt was discussed, and on Monday the 31st of August 2009, after two years of heated debate, the governor of Brazil announced his proposal to manage pre-salt oil. The proposal includes changing the regulatory framework from the current model to concessions for a shared model—one in which the state owns the reserves and the operator pays a portion for the oil produced. This would entail the creation of Petrobras—a state enterprise like the Norwegian Petoro—to manage these shared contracts and decide who would produce in partnership with the state. Additionally, a a portion of the state oil income would be reinvested into social issues, thus acting as a driving force behind the so dreamed of social economic development promised by the “oil El Dorado.” The general consensus is that the government’s proposal has some major structural defects and needs to be revisited and reworked—up until a certain point, that is, and in political terms, that clearly implies an election.

To evaluate how this proposal will impact the future of investments in the Brazilian oil chain, it is necessary to discount the ills of the political game and the hiss of the major international oil companies until the new regulatory model will in fact be the regulatory framework of the pre-salt. It is too early to say how these investments will turn out, as we are still in the second step of a long journey that must precede any true financial results.

Being that this is a long horizon, it is interesting to think in the meantime about the half-life of economic investment in post-salt oil and also about the alternative sources in Brazil—yes, Brazil possesses fantastic renewable resources—and will continue to provide good alternative investment opportunities.

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Tue, 26 Jan 2010 04:14:13 -0800 Agribusiness Opportunity in Latin America http://haxobioenergy.posterous.com/agribusiness-opportunity-in-latin-america http://haxobioenergy.posterous.com/agribusiness-opportunity-in-latin-america

Latin America is home to hundreds of farming cooperatives and small regional growers associations.   Often these cooperatives and associations are home to as much competition as cooperation.  This represents a challenge when growers seek access to export markets for their produce.  It also represents an opportunity for development that will create sustainable growth in the agribusiness sector. 

Mexico’s proximity to the USA, coupled with its climate and the availability of low-cost farm labor, make it a logical source for meeting growing fruit and vegetable consumption in the USA.   The value of U.S. agricultural imports from Mexico is roughly equal to the value of U.S. agricultural imports from all S. American countries combined.  (Source:  USDA Market News)

Orange Case Study

Development banks are willing to invest in infrastructure to support export market development for agribusinesses.  Nacional Financiera, S.N.C. is currently working on such a project with Mangazo SA de CV for exporting oranges from Mexico’s Baja California Sur.   This orange project provides a good template for considering opportunities across Mexico. BCS growers are selling their oranges domestically rather than exporting them to the USA where willing markets await with citrus prices ten times higher than Mexico’s.

In order to take advantage of this attractive price multiple, small growers in the region need to cooperate and invest collectively.   They need more than physical infrastructure such as a USDA-certified packing shed with cooling and sorting equipment and country-of-origin labels with the proper price look (PLU) numbers and bar codes used by retailers in the USA and other countries.

Exporters also need marketing representatives in export markets to plan promotions with retail merchandisers, point-of-sale materials, pricing quotations to be provided five weeks in advance to retail buyers along with volume and sizing forecasts, steady supply through the entire season, reliable freight providers to deliver on-time, and analysis to ensure the produce arrives at the retailer’s warehouse with the desired shelf life for distribution to stores.

Mango Case Study

With the proper physical and professional infrastructure, export programs have been very profitable.  A case study which provides valuable insights into agricultural exports opportunities in Mexico is the mango crop.  Prior to Nafta, mangos were exported to the USA through produce brokers in Florida, Texas, Arizona and California.   These produce brokers maximized the price to retailers, minimized the return to growers, and pocketed a very hefty profit given their minimal value added.

In 1994 a program was implemented by International Market Resources with Mexico’s largest mango grower, Agroproducto Diazteca SA de CV of Sinaloa.  This was the first time retailers in the USA imported mangos directly from the grower.  Within eight years, annual sales for this single grower increased 400% and 80% of the company’s crop was sold directly to retailers in the USA.  By eliminating the middlemen, the grower was able to increase profitability, project consistent growth, and decrease bad debt expenses.

The opportunity is realized when growers are given the tools to manage export sales.  This involves retaining marketing representatives rather than brokers so that control rests with the growers, creating relationships with USDA staff and third party certification agencies, building relationships with retail procurement professionals for planning future yields, pricing, and varieties, investments in an export packing facility, and implementation of  phytosanitary measures from the orchards and fields through final delivery to customers.

Success Stories

The Fresh Produce Association of the Americas is a bi-national organization based in Nogales, Arizona which has benefitted many growers and crops in Mexico.  It success stories include beans, bell peppers, chilies, cucumbers, eggplants, grapes, limes, mangos, melons, squash, and tomatoes. The majority of fresh produce consumed during winter in the western USA comes from Mexico through Nogales, Arizona.

Some of these commodities, like tomatoes, benefit from economies of scale enjoyed by large multinational companies.  Some commodities are still distributed primarily through produce brokers at the border.   More growers are setting up their own distribution operations in the USA.   However, many opportunities remain for regional grower cooperatives and associations to develop export markets on behalf of their members.

Organics

One of the most promising areas for is organic produce.  In Latin America, Uruguay has the highest percentage of organic farm land – much of it in urban areas. But Uruguay is not close enough to the USA to maintain a low carbon footprint for agricultural exports. Organic consumers are very interested in regionally produced foods.

In 2000 Mexico placed 16th in the world and fifth in Latin America for organic land under production. Unfortunately, Argentina’s 3 million hectares certified organic includes unmanaged range land, so the statistic is misleading. “The value of organic production in 2000 was $150 million from Mexico, five times greater than Argentina’s, which puts Mexico second only to Brazil in total value of organic production in Latin America”, according to agriculture researcher Don Lotter from Davis, California.

Mexico’s domestic demand is still small; however, the value of organic production in Mexico is expanding at twice the rate of the USA’s. Coffee is Mexico’s largest organic crop. Buying organic coffee from Latin America helps small rural growers more than most foods you can buy. “Over 50,000 small farmers, with an average holding of 2 hectares produce over two-thirds of organic production value in Mexico. Since it is far beyond the abilities of a producer of that size to seek individual certification, certification is done by farmer groups and cooperatives”, states Lotter. 

The Opportunity

The opportunity exists for investors in regional grower cooperatives and associations to provide the infrastructure and professional development required to build export sales directly to Fortune 100 retailers and quality wholesalers in the USA.   With the proper infrastructure and marketing, growers in Mexico can create profitable long-term relationships with the organizations that retail fresh produce in the USA.

 

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Mon, 25 Jan 2010 13:45:03 -0800 Sugar Price http://haxobioenergy.posterous.com/sugar-price http://haxobioenergy.posterous.com/sugar-price

KDP Raws FOB: $ 609.00
KDP C&F Black Sea: $ 654.00
KDP Whites FOB: $ 719.00

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Thu, 14 Jan 2010 04:39:39 -0800 Ethanol - ETBE (Week Report) http://haxobioenergy.posterous.com/ethanol-etbe-week-report-0 http://haxobioenergy.posterous.com/ethanol-etbe-week-report-0

ETHANOL – Both T1 and T2 markets made healthy gains this week, thanks to growing buying interest and tighter prompt markets. Interestingly, T1 moved into contango territory on Tuesday – with US$689 FOB Rdam booked for prompt Jan delivery, while US$690 traded for February tonnes. T1 prices seem to be heading back in the direction of the record highs of US$710-715 seen in December ‘09 and previously in September ’08. The closure of the Brazilian arbitrage, strong domestic Brazilian prices and surging replacement values are supporting a stronger T1 sector – despite Brazil’s blend reduction announced this week and also in spite of apparently constant ongoing discussions/offers of US material, an alternative source of T1, for the EU market. Some expect the first significant US volumes could come to Europe in February, but, as yet, little or no product has been confirmed booked to EU end-users. Poorer GHG ratings for US corn-based ethanol (compared to Brazilian cane and other origin ethanol) are cited as one of the key remaining potential impediments for European buyers. US producers are otherwise deemed able to produce to EU specs and meet other sustainability criteria.

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