Sector Snap: Ethanol Stocks Plummet
Tuesday March 4, 11:59 am ET
Corn Prices Send Ethanol Stocks Into Downward Spiral As Investors Fear Declining Margins
NEW YORK (AP) -- Ethanol stocks plummeted Tuesday as investors dumped their holdings amid fears that record-high corn prices will push margins into negative territory.
Corn for March delivery added 9.5 cents to settle at $5.555 a bushel on the Chicago Mercantile Exchange Monday, after earlier reaching a record $5.615 a bushel.
Corn is the key component of most ethanol produced in the U.S. The ethanol industry's profitability has been limited by the commodity's surging cost, which producers have not been able to pass completely onto refiners.
Citi Investment Research analyst David Driscoll noted in a report Monday that ethanol pricing was flat last week, although margins moved up 2 cents per gallon. Nonetheless, investors expected high corn prices to bite into upcoming results.
VeraSun Energy Corp. will report its fourth-quarter results next week. Analysts expect it to post a loss of 2 cents per share, compared with a profit of 27 cents per share a year earlier. Archer-Daniels-Midland Co., one of the nation's biggest ethanol producers, said in early February that its ethanol business posted lower fourth-quarter margins and dampened overall profits.
Shares of VeraSun and its buyout target, US BioEnergy Corp., posted the most drastic declines in Tuesday trading. Their $686 million deal is set to close next month and will make VeraSun the top ethanol producer in the country.
VeraSun shares fell $1.10, or 12.3 percent, to $7.83 as US BioEnergy slumped 93 cents, or 13 percent, to $6.22.
ADM shares fell 19 cents to $45.55.
Elsewhere in the sector, BioFuel Energy Corp. fell 42 cents, or 7.9 percent, to $4.88; Andersons Inc. dropped $2.03, or 4.4 percent, to $44.30; and Pacific Ethanol Inc. declined 28 cents, or 5.8 percent, to $4.58.
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