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Oh, VeraSun Energy (NYSE: VSE ) . I thought you were one of the good ones.
You were looking strong last fall when you merged with a small, yet savvy, corn patch competitor. In early 2008, your margins were meaty compared to those of a certain wilting West Coast compatriot. Heck, they even bested those of corn king Archer Daniels Midland (NYSE: ADM ) and oil refiner Valero Energy (NYSE: VLO ) .
One of your other colleagues, Aventine Renewable Energy, stumbled into an auction-rate securities sand trap early in the year. You dodged that bullet, and I praised you at the time for your astute money management. Then you went and stepped in front of a freight train.
I've read your mid-September SEC filing several times, and what you did still confuses the heck out of me. Why didn't you close your short positions as the price rose? Were you that afraid of falling corn prices? If I go short by buying a put option on the U.S. Natural Gas Fund (AMEX: UNG ) to protect my energy stocks, I'll close it if the price rises too much. Perhaps I'm just unsophisticated.
Unfortunately, looking back, you covered your short positions when corn peaked, paying top dollar. And then you proceeded to lock in future supply at lofty levels, just in time for corn prices to crater. On top of that, you promised to buy more in case the price fell. Which it did. That's just forehead-slaptastic.
Now you have declared bankruptcy. Pretty much everyone has egg on their face here:
- you, for reasons we've covered;
- me, for saying you weren't a bad bet back at the time of your merger with U.S. BioEnergy;
- and the people who sent me angry emails with the salutation "Hey [feminine hygiene product]" whenever I said ethanol pure plays might not be the most Foolish of investments.
Even if you manage to keep the lights on and emerge as a reorganized ethanol entity, you will have to find someone else to say nice things about you in the future. You're dead to me, VeraSun. Meanwhile, I suggest that fuel-focused Fools stick to diversified players like ADM, BP (NYSE: BP ) , or Petrobras (NYSE: PBR ) .