Alcohol Storm

Spring brought grave storm warnings to the industrial alcohol industry. On Nov. 1 stocks of alcohol on hand were below the previous year, standing at a comfortable 16,750,000 gal. A warm winter plus Depression caused a change in this situation. At the start of last week stocks of alcohol according to the Journal of Commerce were estimated to have mounted to between 60,000,000 and 80,000,000 gal. But this was not the industry's only storm signal. Alcohol (unless made synthetically) comes from molasses. It takes two and seven-tenths gallons of molasses plus about 10-c- manufacturing cost to produce one gallon of alcohol. In December molasses cost 11-c- per gallon, at the start of last week it cost 4.3-c-. This reduced the cost of production of alcohol from 39.7-c- to 21.6-c-. Although the price of alcohol was down to 35-c- from the 40-c- of a year ago, it seemed certain that, with production costs down, winter over, more overproduction lay ahead.

The storm broke suddenly last week. It was the worst in the history of the industry. A flurry of price-cutting suddenly changed to an open burst of cutthroat competition. Prices were slashed from 35-c- to 24-c- in the first mighty blast. The second gust toppled them to 19-c-. Then there followed tales of hurried secret conferences among alcohol men, of a truce. Prices became firmer, but the storm had done its damage. Alcohol men conceded that it will be a long time before business is done at 35-c-, or the now-to-be-marveled-at 1929 high of 42-c-.

While the storm was at its height, the directors of the biggest U. S. company in the field met to act upon the dividend. Presiding over the meeting was Charles Edward Adams, chairman of United States Industrial Alcohol since 1927, president of Air Reduction Co. (owner of a large minority interest in Alcohol) since 1921. Even were the storm not raging, it is safe to guess that onetime (1902-04) Yale Crewman Adams would have advised curtailment of the dividend, conservation of strength in the long race for profits. For after earnings which rose steadily from $976,193 in 1926 to $4,720,000 in 1929, last year Industrial Alcohol made but $1,104,000. Simultaneously, it took a $3,000,000 inventory loss which, charged to profits instead of surplus, would have created a $1,895,000 deficit last year. Considering these things, the directors reduced Alcohol's dividend from $6 to $2. The common stock (of which there are but 373,846 shares) reflected this action by bouncing around between $38 and $43 (its 1930 high was 77 3/8). In 1929, when alcohol hope burned brightly, the stock sold at $243.

Industrial alcohol is produced under supervision of the Government. Total U. S. production for last year was limited to 81,000,000 gal. by the Federal Prohibition Commissioner. United States Industrial Alcohol has a 40,000,000-gal. capacity, but its share of the industry's total production was only about 38%, or 30,000,000 gal. The company makes some products for the retail trade, such as Alcorub, a massage, Alcogas for gasoline engines, Pyro for radiators. It also controls Sterno Corp., heat canners. Its biggest customers are in the automobile and chemical industries, where alcohol and its by-products are used for solvents, lacquers, fertilizers. Industrial Alcohol works hand-in-hand with Air Reduction, the two companies having recently joined their research departments. Air Reduction controls Pure Carbonic Co. of America in which Alcohol has a 20% interest. Alcohol sells carbon dioxide (CO2) to Air Reduction and Pure Carbonic, which sells carbonic gas to soft drink and dry ice manufacturers. In this field the companies are rivals of Liquid Carbonic Corp. and its ally, Dry Ice Holding Co. In the alcohol field. United States Industrial faces competition from many smaller, scattered concerns, one of the strongest of which is American Commercial Alcohol Corp., doing 16% of the business.

No chemist by training, Alcoholman Adams entered industry via Wall street. He was graduated from Yale in 1904, in 1910 was made a member of Callaway, Fish & Co.. Manhattan. Eight years later he was made Air Reduction's treasurer. Chairman of the company is his older brother, Frederick Baldwin Adams. Alcohol has had no president since Russell R. Brown resigned last January, a fact which adds to Mr. Adams' duties. But he always appears cool, extremely neat, does not look his 50 years. At Yale he was voted "most likely to succeed" by classmates who now also hail as successes Editor Ogden Mills Reid of the Herald Tribune, Dean Clarence Whittlesey Mendell of Yale college, Charles Simonton McCain, chairman board of directors Chase National Bank. Classmates remember Alcoholman Adams as "Toots."

Although last week's price storm may clear the atmosphere for a long time in the alcohol industry, economic observers have sighted another cloud in the distance. Union Carbide & Carbon Corp. has successfully made various types of alcohol by synthesis of the elements instead of fermentation. In Carbide's annual report last fortnight shareholders read: "The first large commercial plant ever built for the synthetic production of ethanol (ethyl alcohol) was put in operation in the summer of 1930, and the results as to capacity, yields, costs of manufacture and quality of product were more favorable than estimated."

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