US Ethanol production is a tough business to be in right now - as is evinced by the performance of US ethanol stocks since the beginning of the year. They appear to be quite simply out of favour with investors.

Take Green Plains Renewable Energy, who recently lost its CFO, Brian L. Larson, after joining just 6 months ago. They have just announced the results of their annual meeting;

i) Three directors, Barry A. Ellsworth, Brian D. Peterson, and Herschel C. Patton, were elected to serve on the Board of Directors for three year terms. The terms of these directors expire at the 2010 annual meeting.

ii) The 2007 Equity Incentive Plan was approved by the shareholders of the Company

My gut instinct is that investor sentiment will recover vis a vis US ethanol producers in the next couple of years. This will come about when company's like GPRE finally start to bring onstream their two 50 million gallon ethanol plants later this year. Too many alternative energy companies seem more like an idea rather than a product-selling, profit-maximizing organisation. In the long-run, more investors are drawn to the latter.

Sao Martinho, Cosan and Santa Cruz have just joined forces to buy Usina Santa Luiza. The acquired company has an annual sugarcane crushing capacity of 1.8 million tonnes, uses 19,000 hectares of cane plantations on leased land and acquires 200,000 tonnes of cane per year from suppliers.

Sao Martinho's currently crushing capacity of 10.3 million tons a year will get another 750,000 tons from this deal, as they have a 42% share. All in all, there does seem to be some consolidation going on in the Brazilian ethanol industry and so I do wonder how many affordable opportunities there will be for the likes of Clean Energy Brazil plc. Since raising $200m from their AIM float in December, they have already earmarked or spent the cash on investments and some would ask how much market appetite there is to give them more funds.

We can only wait and see.

US Bioenergy, an ethanol producer that IPO'ed last December has announced a very successful Q4 - sales were up 10 times on Q4 2005 and it was also a profitable quarter.

This should all be very encouraging except that US Bioenergy is trading below its IPO price of 14, while the price of oil has crept back up to $65. Investors may have fallen out of love with ethanol, but it does appear that there is not a great deal of correlation between the price of oil and the price of ethanol stocks. Instead ethanol stocks have been much more affected - as per this concise article on Motley Fool to;

i) the uncertainty surrounding future demand for ethanol
ii) the risk of higher corn prices
iii) concerns over long-term profitability for the major players in the market.

Ultimately, the greatest failing of conventional first generation ethanol technology is one of scale. It has been estimated that the absolute that can be produced today from ethanol - if everyone pulls out all the stops - is 5 million barrels a day. That's just not enough to make any serious impact on global consumption of approx 86 m barrels a day, still rising at 1 - 1.5 m barrels a year.