Biofuel Energy shares fall 60%

By Kevin Allison in San Francisco
Published: August 12 2008 23:31

Plunging commodity prices claimed a casualty on Tuesday after Biofuel Energy, one of the biggest independent US ethanol producers, said millions of dollars of losses on hedges designed to protect against the rising cost of corn and natural gas had left it short of cash.
Biofuel’s shares plunged more than 60 per cent after it warned that it lacked short-term liquidity to cover a combined $46m in realised and mark-to-market losses on its hedging contracts.

Biofuel, which uses corn and natural gas to make ethanol for use in petrol, said it had hedged about 40 per cent of its short-term corn requirements as of June 30. At the time, corn was trading at more than $7 a bushel but it has since fallen by more than a third to $4.84, resulting in steep losses for the company.
The cash squeeze could present an opportunity for Cargill, the agricultural processing giant that was counterparty to the group’s hedging contracts.
Biofuel said it was in discussions with Cargill over a payment schedule that would allow it to meet its short-term obligations. Cargill is a shareholder in Biofuel and the two companies have struck long-term supply and marketing agreements.
“We are fully engaged [with Biofuel] as they work their way through this,” Cargill said.
Biofuel did not return calls for a comment.
Ethanol producers have been battered in recent years by a collapse in ethanol prices and a sharp spike in the cost of corn and natural gas required to make the fuel.
Many ethanol companies engage in hedging to limit the impact of swings in commodity prices, but it was not clear on Tuesday whether other ethanol producers were facing similar exposure.
The Renewable Fuels Association, the ethanol industry lobby group, said most ethanol producers had locked-in corn prices to the end of August.
Biofuel said it had realised $10.1m in gains on its futures and options con- tracts as of the e nd of June.
But those gains quickly turned to losses following the steep fall in corn prices, according to the company.
Biofuel’s shares dropped 63.1 per cent on Tuesday to 93 cents, adding to a slide of more than 80 per cent this year.
Additional reporting by Stephanie Kirchgaessner
Copyright The Financial Times Limited 2008