Ethanol industry needs care when hedging – US consultant

25 February 2009 00:05  [Source: ICIS news]

SAN ANTONIO, Texas (ICIS news)--US ethanol producers should take advantage of available risk management tools, but the industry needs to take care to use them properly, a consultant said on Tuesday.

"Hedging can be a good thing but it must be done carefully," Phillip Coffin, a branch manager with financial firm John Stewart & Associates, told the National Ethanol Conference in San Antonio.

Coffin compared hedging to a dental drill, suggesting that results could be disastrous if the person handling the instrument was not trained to do so.

A failed hedging strategy was widely blamed for the demise of VeraSun, formerly the second-largest US ethanol producer.

VeraSun filed for bankruptcy protection in October 2008, after making bad bets on the price of corn earlier in the year.

The company announced in February plans to divest most of its assets.

Coffin said ethanol producers should not panic by trying to avoid risk altogether.

Depending on the timing, risk can also be an opportunity, he said.

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By: William Lemos
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