the visible hand

it is the theory which decides what can be observed – einstein

Farm bill “tree act” and tax credits for wood-chip ethanol

Posted by ecoshift on May 1, 2008

Looks like there could be a shift in support from corn ethanol to the not-quite-ready-for-prime-time cellulosic ethanol — the kind you make from wood chips — in the upcoming Farm Bill. IF wood chip ethanol tech is real it could raise timberland values over the next decade despite current depressed lumber markets. Temporary timber company tax break also worth noting. Stay tuned… – Wall Street goes bargain hunting in the farm bill
By Jessica Holzer
Posted: 04/23/08 08:16 PM [ET]

Money managers, including hedge funds looking to scoop up battered stocks on the cheap, have told their Washington-based consultants to keep close tabs on the farm bill.
“There’s a lot of interest in what might end up in the final bill,” said Mark McMinimy, an analyst with the Stanford Group in Washington. “People are sitting on pins and needles waiting to see what will happen.”

Wall Street investors have long traded on information flowing from Washington. But their hunger has grown in recent years with the hedge fund industry’s boom, making money managers more eager for any tips on legislation or regulatory changes that will give them an edge in the markets.

They are hunting especially for opportunities to bet on a stock likely to fall or rise sharply on a policy action. Businesses heavily concentrated in a sector affected by the policy change are prime targets.
Wall Street investors are intensely interested in the energy provisions tucked into the $2.4 billion tax package the Senate attached to its legislation. The tax package has proved controversial in the House, and investors and their consultants are busy trying to handicap its chances of surviving.
Having poured money into ethanol plants during the ethanol boom, many investors are now aching from the ethanol bust. They’ve been burned by a surge in the price of corn, the fuel’s main ingredient, and depressed ethanol prices caused by oversupply.

The tax package contains a two-year extension of the 54-cent per gallon tariff on foreign-produced ethanol that has been crucial for U.S. producers. Without congressional action, the tariff will be lifted at the end of the year.

“Ethanol generally is of huge interest to the market,” said Pete Davis, who runs Davis Capital Investment Ideas. He said his money manager clients were “very concerned” that the tariff could be allowed to expire, opening the floodgates to cheaper Brazilian ethanol.
“There are a lot of investors who are interested in the durability of the subsidies because they may want to get in at this price,” said Kevin Book, an analyst at Friedman, Billings, Ramsey.

Another provision in the Senate bill would reduce the current ethanol blenders’ tax credit by five cents to 46 cents per gallon to pay for a boost in incentives for second-generation or cellulosic ethanol. Along with the tariff and the phase-out of the fuel additive MTBE, the blenders’ tax credit helped to spur the ethanol boom.

But Book argues that nicking the credit by five cents will paradoxically help U.S. producers by hurting their competition. That’s because the credit also goes to importers, who use it to offset most of the cost of the 54-cent tariff. Under the provision, they will get less money back.

Investors are also watching a provision in the tax package, named the Tree Act, that would aid the timber industry, which is currently suffering from the housing downturn. The one-year incentive would cut taxes on traditional timber companies like Weyerhaeuser as well as clear up rules surrounding timber real estate investment trusts….


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