There is a scene in the movie "Animal House" (which completely rips off Dr. Suess' "Horton Hears a Who" in one fell swoop but that's a story for a different day) where a small group is at Professor Riegert's house and after the room fills with a certain scent the discussion gets a bit heady and the concept that our entire universe could be on the head of a pin in another, larger, universe is proposed. Grand stuff for sure but in the good professor's case merely an attempt to raise Pinto's awareness of a world outside of his own "Private Idaho".
So with the perspective one probably only gets while riding in the space shuttle, and I am right here on earth I can assure you, I would present to you this morning a cure for world hunger and it all starts, if can imagine it, with pancakes.
"We make pancakes out of it once in a while and have them for breakfast", Barry Frazier, President of Center Ethanol Co.'s Sauget, Ill plant explained when speaking of Distillers Dried Grain or DDG as it's known in the trade. Barry is quick to point out, "They're not [restaurant] quality or anything, but they're not bad".
Not bad is an understatement when you consider that DDG contains 36% protein by weight vs. 8%-12% for corn and has very high fiber content. I'm no nutritionist but it is safe to say with those characteristics it's a little higher up on the food pyramid than a Twinkie. Padmanaban Krishnan, a professor in the Department of Nutrition, Food Science and Hospitality at South Dakota State described DDG's nutritional attributes as packing more "bang for the buck".
The U.S. Department of Agriculture says we export about 4.5MM tons of this stuff and about 25% of an ethanol plant's revenues comes from the sales of DDG. Where's it going? To China as animal feed! Now I'm not looking to open the pig pot with China again but with millions of people starving around the world and billions of tax dollars going to support one of the most inefficient methods of producing ethanol, thank you Farm Lobby, I would think it would give Uncle Sam some global "street cred" to ship a few tons (or a few million tons) to some of the more impoverished regions on this spec of dust.
Heck, if Congress can throw a few billion at AIG and GM and think that gives them the right to move into the executive suite, the amount of money they've allocated to the farmers in this country over time probably gives them the right to at least half if not all of the DDG produced in a year. But then, with regard to helping anyone but themselves, Congress "bought the farm" years ago.
Goldman Sachs (GS) just announced a $500MM program to help small businesses and engaged the Oracle of Omaha to lend a hand in the process. Spending a highly publicized $½BN in an attempt to camouflage the $14BN they're paying out in bonuses and even more zeroes when you consider the firm's revenues seems like a pretty cheap way to buy a good reputation and with all the GS alums in D.C. you'd think they would have come up with this idea down there first.
The list of companies that produce ethanol, either directly or through a subsidiary is long but given the government subsidies for being in the business that should not be surprising.
Archer Daniels Midland (ADM) and Cargill (CAG) are two that come from the agriculture side of things and FPL Group, Inc. (FPL) is a utility that produces some.
ADM's CDS has spent most of the time since May moving lower with some choppy sideways moves thrown in to keep everyone on their toes. The stock hit $31.94 on 7/27, retreated all the way to $27.05 on 8/17 and then moved on up to $32.61 on 11/10.
CAG's CDS dipped as low as 23bps on 8/7 and has risen since closing last night at 50bps. The stock has defied the usual negative correlation and spent the 8/7 to 11/19 period rising as well closing last night at $22.37.
FPL's CDS trade under FPL Group Capital and after peaking in early January (425bps) have fallen slowly and steadily throughout the year hitting their low point on 9/17 at 55bps. The CDS closed last night at 78bps. Similar to CAG but in reverse the stock has fallen along with the CDS.
