Tuesday, February 08, 2011

Putting the Squeeze on Corn

After a series of bankruptcies laid the U.S. ethanol industry on its back a few years ago, the survivors got the message - become economically feasible or go out of business. The industry has been scrambling to adopt new processes that utilize other non-food materials or at least get more out of the corn that has been the mainstay feedstock.

Enter Greenshift Corporation (GERS: OTC/BB) with its corn oil extraction process. Adding a new step to the corn-ethanol production process is changing the economics of corn-ethanol production by giving producers new revenue streams.

In the U.S. corn-ethanol industry the dry mill process is most typical, with the whole corn kernel going into the fermentation stage. After fermentation process that turns the sugars in the corn kernel to ethanol, the leftovers or “corn stillage” are usually put through water extraction and drying stages. The dried by-product called distillers grain is sold as animal feed. Cattle or hog finishers are only to happy to get distillers grains since the protein content is near 30%.

However, distillers grains also has a high fat content - 12% to 15%. Greenshift’s corn oil extraction process removes corn oil from the corn stillage, providing ethanol producers another revenue producing by-product. The corn oil can then be sold as biofuel feedstock or as an alternative animal feed ingredient. What is left in the stillage goes on through the usual water extraction and drying process. Greenshift claims its process removes as much as 80% of the oil from the corn stillage.

Greenshift has managed to license its process to a half dozen or so ethanol and corn handling concerns, including most recently Marquis Energy for its Wisconsin ethanol plant. Marquis previously licensed the Greenshift technology for a Marquis plant in Illinois. Green Plains Renewable Energy, Inc. (GPRE: Nasdaq) is also a licensee. In a recent letter to shareholders, Greenshift CEO Kevin Kreisler predicted that current license agreements would be sufficient to bring the company to breakeven at the operating level.

As rosy as the story might sound, GERS is only for the most risk tolerant investor. The stock is trades more than 70 million shares per day at a price that is well under a half penny. Those of us who need to sleep at night might wait until Green Plains has implemented the Greenshift technology. Green Plains expects to complete deployment by the end of March 2011 and it could enhance operating income by $15 million to $19 million per year. If Green Plains is able to make good on its claims, it could be a good reason to look more carefully at GERS.


Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. GERS and GPRE are included in Crystal Equity Research’s Beach Boys Index in the Ethanol Group.



jlglex said...

The GEVO IPO priced last night at the top of its price range and will begin trading, today.

It makes an excellent valuation benchmark for GreenShift, and the performance of the IPO will be an excellent guage of GreenShift's chances for getting an underwritten, secondary offering of equity to recapitalize its balance sheet.

Anonymous said...

Your such a asss. You lie your butt off on Ihub. Lie about how many shares you own (read your own old posts on Ihub). Badmouth GERS cause the SP did'nt go up as you planed. Go to school before your mommy spanks your butt.