Famine to Feast?

Cindy Zimmerman

Just a few weeks ago, the media was focused on there not being enough ethanol to meet the demand with the phase out of MTBE. Now we’re seeing articles questioning if we might be heading toward producing too much ethanol.

Forbes’ Dirk Lammers writes “some analysts say the burgeoning industry faces risks of oversupply, volatile commodity prices and a dependence on government subsidies.”

A Bloomberg News piece by Joe Carroll says “Within two years, planned expansion by ethanol producers will push U.S. supplies past demand, according to Standard & Poor’s.”

The dire predictions come on the heels of VeraSun’s shining initial public stock offering last week raised $419.8 million. The stock skyrocketed to $30 by market close on Wednesday. The company‘s shares fell in the days afterward to close at $25.25 Friday. Shares of Bill Gates’ investment Pacific Ethanol have fallen 43 percent in the past month. Meanwhile, two other ethanol companies, Hawkeye Holdings Inc. and Aventine Renewable Energy Holdings Inc., are planning their own initial share sales later this year.
“Investors poured $14.3 billion into U.S. ethanol stocks in the past 12 months, according to data compiled by Bloomberg.”

Like anything else, the key is moderation – too much expansion too fast could ultimately wind up hurting the inudstry. But, also like anything else, there’s a rush to cash in while it’s hot.