Wall st shockwaves travel through ethanol

Wall St shockwaves are hitting a number of companies in the Ethanol business says Reuters in a report last Wednesday.

Thereport looks at  Aventine and Verasun and the impact of a capitalsqueeze and rising corn prices. Management in those firms, and manymore, will be working hard over the next few months.

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2 Responses to Wall st shockwaves travel through ethanol

  1. larry hagedon 20 September, 2008 at 1:50 am #

    VeraSun has learned the hard way that speculating in the futures market is kinda like rolling the dice, you win some you lose some.

    The larger problem, however, is with the many older ethanol companies that are clinging to last years business plan.

    You can no longer expect to make a fast profit buying corn, making Ethanol, and selling the distillers grains as an after thought and a by-product.

    The companies that will continue to survive processing corn will do so by making and marketing a wide range of value added co-products. These will necessarily include some extensive combinations of; food ingredients, pharmaceuticals, industrial chemicals, plastics, animal feed components, ethanol, diesel fuel, bio crude, syngas and methane.

    In fact corn processors need to think of themselves as just that; processors of corn. They should no longer even attempt to make ethanol their focus, but instead consider it a by product of producing a range of other value added products.

    I expect the more successful model of processing plants will need to include various bio-technologies and feedstocks besides basic corn distillation.

    Without a lot of value added co-product, 2.8 gallons of ethanol from a 4 to 7 dollar bushel of corn will not pencil out when your neighbor is making his ethanol from sewage and garbage.

    Those that do not adapt to this new reality will fail.

  2. Simon Robinson 22 September, 2008 at 2:45 pm #

    Hey Larry,

    you’re right about needing to supply a range of products, not just distillers grains. One of the problems with many ethanol producers is that they are not integrated either back into corn/feedstock or forwards into distribution/gasoline/diesel delivery on any meaningful scale. So they hope that the margin is going to be where they are in the chain. If you own the chain, or positions in it, then you can extract value where ever it occurs.

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