Ethanol maker VeraSun files for bankruptcy

VeraSun Energy, an ethanol producer that failed to foresee a drop in corn prices earlier this year, filed for bankruptcy protection Friday.

The Sioux Falls, S.D.-based company said it will continue to operate during bankruptcy, including making feedstock purchases and paying employees.

A VeraSun ethanol plant in Nebraska

(Credit: VeraSun Energy)

VeraSun, which claims to be the biggest ethanol producer in the United States, has run out of cash because of a change in its hedging strategy for purchasing corn. The global credit crisis has also hampered its ability to raise operating funds.

"Today's filing allows VeraSun to address its short-term liquidity constraints as we navigate historically challenging market conditions while we focus on restructuring to address the company's long-term future," CEO said Don Endres said in a statement.

Earlier this year, the company locked into corn prices at a time when heavy rains in the Midwest dimmed the prospect for this year's corn harvest. Ethanol, used as an additive to gasoline, is made primarily from corn today.

However, the harvest turned out to be better than feared. Then a drop in economic activity further depressed prices, cutting the price per bushel roughly in half from its peak.

The bankruptcy filing had been rumored for weeks, sending the company's stock price below $1 per share last week.

A number of ethanol producers that have had to declare bankruptcy in the past year because of volatile feedstock prices, one of the main costs in making ethanol.

[Thomas, David]

Mr. LaMonica,

I am going to have to ask you for some information here, as I am confused based upon the information in this article.

Ethanol, is a fuel additive of which demand has been rising over the years. Corn prices have dropped, and that is a major U.S. resource for ethanol itself. Does this not mean it costs less to produce the ethanol, while having a higher demand for the product itself? So far, this makes no sense, can you please explain it.

[this1!]

Anyone who is in the field of agriculture, or agricultural engineering can explain to you why ethanol is a dumb idea, with even worse execution. It was meant to help diminish some of our reliance on foreign oil, but the technology has not been refined, and the entire initiative itself botched from the get go. As far as efficiently converting pre-existing energy into a form of energy (fuel) we as people can use, ethanol is extremely inefficient as it uses far more energy than it produces (in terms of land, nutrients, human energy, electrical energy for the refining process, etc...). If you want specific information, i suggest you search for it on google.

[Thomas, David]

OK, I followed the link on "change in it's hedging strategy" ... though legal, it seems to me to be nothing more then negligence. Putting an entity at risk for a cheap gain. I hate to say it, but especially at this time ...

(and within the last two years it would be silly any corporation to plea ignorance of the economic conditions)

... it seems they should have been focusing on business itself. Playing with the market, even on the fringes simply should not ever be the remotest of duties of a manufacturer. Fine, maybe you are trying to get a better price, but at the cost, and risk of your corporation ... never.

[cohaver]

This happens when you have all MBA Sales staff on a board of Directors and no Processing Engineering Staff . Problem with American companies not enough people who want to do the Dirty work of running a company. In world of make believe Masters of Business Administration wish to be kings
and shareholders believe their BS. Get Dirty Work hard make something and add value to world
Wont find that being offered in College classes . We love the ENRON type of Leadership in America.

[texas010101]

David,

The key to your question is in this line, "Earlier this year, the company locked into corn prices at a time when heavy rains in the Midwest dimmed the prospect for this year's corn harvest. "

This implies that the company signed contracts to purchase corn at high prices, because they thought the prices would go even higher due to the possbility of a poor harvest.

Therefore although corn prices are down now, the company is still paying record high prices for it.

What I don't know, and what the article doesn't explain, is how this translates into such a bad picture for the company given the current price of gas.

[Manhattan2]

We told you so. Ethanol and the legislative acts that were pushed through Congress should never have happened. The long term solution is solar power via parbolic systems design and strategic placement. What we call a Solar Transfer. No matter who wins the election it is time to deploy our Solar Transfer solution. John McCain or Barack Obama need to investigate the Manhattan 2 Project and the work they are doing in Solar Power. Email us if you want to learn more.

[gsekse]

Even years ago I read somewhere that ethanol is not economically sound unless gas prices exceed $3.00 a gallon. Considering the major slide in gas prices, coupled with the locked in high corn purchases, this appears to be receipe for financial ruin for a startup company that is locking horns with major oil to some degree.

To address the other comments here. While I'm not happy with "Enron type leadership", there is more to the future purchase than simple greed. Most electric utilities purchase oil, coal and gas in this manner when the conditions appear proper. I worked for a glass manufacturing company that used major amounts of gas to fire the glass melting furnace. (annually it used as much gas as town of 50,000 people) They too, would attempt to lock gas prices for 6 months or so. It made pricing the final product much easier. Many companies that purchase large amounts of raw material or energy, will attempt to stabilize that large cost factor in their production so that they can stabilize their product prices over a period of time.

[jimpal]

If they locked in the price of corn, why did they not also lock in the price they were selling their ethanol. Seems that would be the smart business thing to do. That way they would have a good idea on what their profits would be.

[Commander_Spock]

What do the "Brazilian" Manufacturers know better about "ETHANOL PRODUCTION" that "American" Producers don't!!!

[tech_crazy]

Wow! This is the first time ever that details of any kind/level have surfaced from Manhattan2. So much for the secrecy surrounding the "Solar Transfer" hype.

[Manhattan2]

Phase one. Get the word out about the solutions that should not be.
Phase two. Build the capture solutions that make sense.
Phase three.??
Phase four. ??
Phase five. ??
There is still much to be told. much to be discovered. The answers are coming. Help will be needed! Who wants to help make a difference?

[gggg sssss]

I told you so. Check prior posts. The wind powered and solar powered twits will face the same fate. Their CEOs will walk off with million$ in govt funding though. Whre is the line?