Maybe ethanol is not such a good business after all. Stocks in the sectors were really darlings of the market a year ago. Now oil prices are back down and the price of corn is up, although not as much as it was in mid-summer.
One of the two or three largest ethanol companies in the U.S., Verasun (NYSE: VSE) is filing for Chapter 11. According to The Wall Street Journal, "VeraSun made bad bets on the corn market over the summer as grain prices reached record highs."
Shares in the firm traded as high as $17.75 late last year. They had dropped to $0.34.
The entire industry may face a restructuring now. It had built a tremendous infrastructure of new plants and shipping facilities assuming that ethanol would be "the next big thing" in the global fuel business. Corn prices moved up because farmers could not produce enough for food and fuel.
The real giant in the industry is ADM (NYSE: ADM). It has moved up from a 52-week low of $13.53 to almost $21.00. The Verasun news could move the shares south again.
Douglas A. McIntyre is an editor at 24/7 Wall St.
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