Pacific Ethanol Inc. (PEIX, Financial) stock was down 0.84% in midmorning trading Friday. The company, a leader in the industry, announced a positive first quarter in May with revenue increasing 13% and gallons sold increasing by 9% on the year.
The positive results sent the company's stock up in May before the stock price plummeted 13%. The company's shares are down over 18% in the past three-month period and down just 1.8% in the trailing 12-month period.
Political uncertainty was the main factor leading to the May decline. The White House's proposed budget will also reduce funding to major consumers of ethanol including agriculture companies and farmers. The company's lack of diversity is also a key factor of concern for investors.
The Energy Information Administration also released data on Wednesday noting a drawdown in domestic inventories with plant production and demand falling. Stockpiles for the week ended June 2 show domestic plant production is down 21,000 barrels per day and 7,000 barrels per day lower than the year prior.
Production was hampered by an explosion at the Didion Milling plant. The explosion led to at least four deaths and nearly a dozen employees being injured. The plant, one of the most efficient and innovative in the country, suffered severe damage from the May 31-June 1 explosion. The plant's operations were halted.
The explosion had a direct impact on production figures.
The Renewable Fuels Association released a report on Wednesday to remind the Environmental Protection Agency (EPA) of the quick growth of ethanol in the country with plants increasing from 81 in 2005 to 213 in 2016. Ethanol jobs have more than doubled in the same time period rising from 153,000 to over 339,000.
Republicans are urging the EPA to freeze the ethanol mandate. The mandate was increased in November 2016 to increase the nation's fuel supply to include 6% ethanol and other biofuels. The push to increase the mandate in November came after protests urged Congress to increase the U.S. ethanol supply in accordance with the decade-old renewable fuel mandate.
The Trump administration, having recently pulled out of the Paris Climate Agreement, is a wild card for the ethanol industry. Policy shifts are having a direct impact on ethanol-related stocks despite the industry setting production records last year.
Trump's strong ties to the oil industry and Carl Icahn (Trades, Portfolio), a Trump adviser, caused industry sentiment to drop after Icahn recommended a policy change to the Renewable Fuels Association. The change will benefit Icahn's oil refining company.
Disclosure: The author does not own any shares in the listed equities.
