VeraSun Energy, the largest publicly traded ethanol maker filed for Chapter 11 bankruptcy protection. VeraSun has annual capacity of 1.64 billion gallons of production against an industry capacity of $11 billion gallons. They were caught in a squeeze of declining gasoline prices and hedges that locked them into high corn prices. The cost of gasoline has declined over 50% while corn has fallen just under that amount at 48%.
Other major producers who are publicly traded have seen stock declines by grater than the fall in corn or gasoline. There will be further fall-out in this industry and it is unlikely that the government will save them given all of the other pressing issues. However, the corn lobby strong and has been a big backer of ethanol.
The decline in ethanol production will take away one of the key drivers for the run-away increase in Midwest corn prices over the last few years. While ethanol is not dead, there will not be any capital flowing into the industry to increase production capacity. This may be a positive for an idea that may not be as green as originally thought.
Other major producers who are publicly traded have seen stock declines by grater than the fall in corn or gasoline. There will be further fall-out in this industry and it is unlikely that the government will save them given all of the other pressing issues. However, the corn lobby strong and has been a big backer of ethanol.
The decline in ethanol production will take away one of the key drivers for the run-away increase in Midwest corn prices over the last few years. While ethanol is not dead, there will not be any capital flowing into the industry to increase production capacity. This may be a positive for an idea that may not be as green as originally thought.
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Goldman dropped analysts coverage on the ethanol industry on Monday.
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