Camino Energy

Not all the declines in sustainable stocks are macro-driven.  For the second time in the last month hedging strategies resulted in stunning losses for biofuels companies.  Predictably the loss triggers a precipitous decline in the company’s stock price.   On August 18th we reported on BioFuel Energy’s (BIOF) problems with hedging  caused a 64% decline in the company’s price.

This time, Verasun (VSE) struck.  In an SEC filing related to a stock issuance, the company described its difficulty purchasing corn in a volatile market and the resulting quarterly loss of USD 63 - 103 million.  In the face of this week’s market turmoil, Verasun lost 73% of its value or roughly one-half billion USD of shareholder value.

It’s time biofuels companies become proficient in managing the very basic price risk in their business.   At this point it won’t be a shock to see another huge loss.  Management needs to build investor confidence by demonstrating through convincing communications and risk management policies that they are competent in this important area.   Other industries have had problems with risk management and in some cases, such as the electric sector, have improved their performance.

Posted on September 17th, 2008 under Analysis • Tags: BIOF, VSE. •  Print This Post •  Email This Post • RSS 2.0 feed • Leave a response, or trackback