VeraSun Energy, No. 2 ethanol maker in U.S., files for bankruptcy

Bloomberg News

VeraSun Energy Corp., the second-largest U.S. ethanol producer, filed for bankruptcy protection after making bad hedging bets on corn, a raw material used to make the fuel.

The petition for Chapter 11 bankruptcy in Wilmington, Del., listed both assets and debt of more than $1 billion. The Sioux Falls, S.D.-based producer and seller of ethanol, which was formed in 2001, has 16 production facilities in eight states and an annual capacity of about 1.64 billion gallons of ethanol, according to its website.

VeraSun temporarily shut down its plant in Linden, Ind., on Tuesday without giving a reason. The company’s shares have plunged 89% since Sept. 16, a day before it said it might report a third-quarter net loss of as much as $103 million because of failed hedging bets.

The bankruptcy is “a pretty big deal for the industry,” Pavel Molchanov, an analyst at Raymond James & Associates in Houston, said before the filing was made public.

A hedge is a financial instrument used to lock in commodity costs.


The company said it locked in corn costs as the price reached almost $8 a bushel after floods threatened crops in the Midwest. By late October, corn had tumbled to $3.64 a bushel, a 21-month low, on concerns that economic weakness could hurt demand for food and livestock feed.

VeraSun joins Greater Ohio Ethanol, a closely held refiner, and Gateway Ethanol in bankruptcy. Other troubled ethanol makers include Biofuel Energy Corp., which said it had $46 million in combined corn, ethanol and natural gas hedge and mark-to-market losses and might restructure.

There are 178 ethanol distilleries in the U.S., with the capacity to produce 11 billion gallons of ethanol annually, according to the Renewable Fuels Assn. in Washington. Closely held Poet, also based in Sioux Falls, is the largest producer.