The Corn Is Off The Cob On Ethanol Makers

Remember how just yesterday this was THE sector to be in?

Bloomberg: Goldman Sachs Group Inc.‘s analysts abandoned coverage of the ethanol industry today after VeraSun Energy Inc., the largest publicly traded U.S. ethanol maker, filed for Chapter 11 bankruptcy protection.

Goldman analysts Arjun Murti and Amil Mody cited Brookings, South Dakota-based VeraSun’s Oct. 31 bankruptcy filing and the plunge in market valuations for other distillers as the reasons for dropping coverage of the industry, according to a note distributed to clients.

Murti, the Goldman analyst who predicted a “super spike” in oil prices in 2005, and Mody estimated profit at Aventine Renewable Energy Holdings Inc., the third-largest publicly traded U.S. ethanol maker, will drop 71 per cent next year to 15 cents a share. Pekin, Illinois-based Aventine tumbled 86 per cent this year.

Pacific Ethanol Inc.’s half-decade money-losing streak will continue for at least another five years, Murti and Mody said in the note. Pacific’s shares fell 87 per cent this year.

“We continue to believe the outlook for ethanol producers is challenged,” the analysts said in the note. “We believe this weak margin environment, coupled with the financial difficulties of producers, will keep downward pressure on ethanol shares.”

Decatur, Illinois-based Archer Daniels Midland Inc. is the second-largest publicly traded U.S. ethanol producer.

See Also: How Ethanol’s Hedges Turned To Cream Corn

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