Ethanol makers hit by cash crunch, corn prices

SAN FRANCISCO/NEW YORK (Reuters) – Shares of U.S. ethanol makers took a beating on Wednesday as they wrestle with unpredictable corn prices and dwindling cash piles at a time when capital markets look unlikely to provide easy financing.

Aventine Renewable Energy Holdings Inc said on Wednesday it could seek to issue new debt and shares or delay construction of some plants to shore up its cash position, and its shares tumbled 22 percent to $3.94 in afternoon trade.

That came a day after industry leader VeraSun Energy Corp warned of a larger-than-expected quarterly loss, hurt by costly contracts for the corn from which its ethanol is made, and its stock plunged 72 percent to $1.48 on Wednesday.

The financial squeeze comes despite the sector’s rampant growth. Annual U.S. ethanol capacity has grown 60 percent since last year to 10.96 billion gallons as producers expect federal mandates and pricey oil to open up markets for the alternative motor fuel.

“It’s not ethanol as an industry that’s in danger here,” said Pavel Molchanov, analyst at Raymond James and Associates. “The news from VeraSun just underscores how hedging can help companies manage risk but it can also cause damage.

“It can help but it can hurt.”

Reuters