Morgan Stanley says ethanol price outlook is improving; ethanol stocks jump

A Morgan Stanley analyst issued an improved short-term outlook for ethanol prices, promoting recovery in the share price of pure-play ethanol stocks such as Pacific Ethanol.  On the news, Aventine (AVR) was up 9.50 percent to close at $8.76 and Pacific Ethanol rose 10.43 percent to reach $4.66.

The news comes after a long series of downgrades for the industry,

Earlier this month, Lehman Brothers analyst Mansi Singhal downgraded VeraSun Energy (VSE) and Aventine Renewable Energy (AVR) to “Equal”, from “Overweight”, saying that corn prices were unlikely to decline in the near term. She downgraded the ethanol sector to “Neutral” from “Positive”, and established a $13 target price for both Aventine and VeraSun.

In September, FBR analyst Eitan Bernstein downgraded Aventine (AVR), VeraSun (VES) and Pacific Ethanol (PEIX) as the analyst proved pessimistic on the chances for a price recovery for ethanol or relief for producers on the cost side

Last week, an investment company owned by Bill Gates, Cascade Investments, filed to convert its preferred shares in Pacific Ethanol to common stock and register a potential sale.

Cascade owns 21 percent of Pacific Ethanol and has lost more than $60 million on the stock since August. Cascade invested $84 million in 2005.

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