As Verasun (VSE) Goes Chapter 11, The Ethanol Industry Faces Serial Failures

November 1, 2008 by Douglas A. McIntyre

95129cThe most prominent ethanol energy company in the US, Verasun (VSE), is filing for Chapter 11. Among other things the firm has been pinched by falling oil prices, which make ethanol less attractive, and rising corn prices, which makes production more expensive.

When oil was at $147 a barrel, ethanol was a savior for car and truck drivers everywhere.

The ethanol industry built tremendous production and transportation infrastructure. It was a "if we build it, the will come" strategy. Then, the world fell apart. Prices for gas at the pump are back down well below $3 instead of being headed toward $5 as they were in August.

Verasun says it will keep operating, but common shareholders have been crushed to death. The stock was at nearly $18 late last year. Now it is under $.40.

The next companies that stockholders need to be concerned about are Pacific Ethanol (PEIX), which has dropped from a one-year high of almost $10 to $.90 and ADM (ADM), which is too big to fail but could get nicked by the industry fallout.

Until oil moves back above $100, ethanol companies are in a coma.

Douglas A. McIntyre