Why the Alto Ingredient Broth just burst

What happened

Ethanol producer actions Ingredients Alto (NASDAQ: ALTO) rose 11% in Monday afternoon trading, reaching a 10.2% gain at the close on what appears to be positive news for the industry – and just in time for profits.

So what

Stocks trended lower during the latter half of February, with investors worried that high corn prices (up 25% year-over-year in 2020) hurt Alto, which transforms grain to produce ethanol as a fuel additive and as a key ingredient in hand sanitizer. and disinfectant.

The more expensive the corn, the more expensive the raw material Alto uses to make its products. So the rise in corn prices is probably bad news for Alto.

But there are a few possibilities for this that might help the stock. On the one hand, high corn prices may drive competitors away from the ethanol sector and give Alto greater pricing power. As Agriculture.com reported in January, about 10% of the country’s roughly 200 ethanol plants had to slow down earlier this year because they couldn’t hack the high price of corn, and 10% have reduced their production for the same reason. .

Meanwhile, the website is also reporting today that farmers are logically responding to high corn prices by planting more corn this year, although doing so is likely to increase supply and bring corn prices back down.

Image source: Getty Images.

Now what

Results: This cyclical industry does what cyclical industries tend to do, go from boom to boom again.

Analysts following the stock are predicting that when Alto’s earnings are released in a few weeks, we will learn that it has reversed its losses from a year ago and will instead return a profit of $ 0.24 per. action. Even if they’re wrong about it (if higher corn prices eat away at margins more deeply than expected), the prospect of planting, harvesting and processing more corn means the rest of 2021 could be milder for Alto and lead to better … predictions later this month.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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