Then I look back and I wonder, well how was VeraSun as a company, and why did the producer file for Chapter 11 bankruptcy and subsequently liquidate all of its assets?
Well for starters, it's important to revisit the ethanol news bombshell (at the time) that VeraSun had acquired a number of ethanol plants. As mentioned several times now, this company had finally become the largest ethanol producer in the country in terms of number of gallons produced annually throughout its entire portfolio... and as such had a significant load of debt. But this idea alone can't topple a company. At least, usually not. But the way I see it, it is in a way like getting a super high deductible on your insurance policy for comprehensive or collision. It's great in a short term sense, as you have lower payments (in theory)... but you are screwed if you get into an accident where significant repairs are necessary. VeraSun had in theory acquired more production capacity, and thus a wider, more diverse number of sources of income. The problem is that this left them vulnerable for something to happen - i.e. you get t-boned. Sure, the insurance company pays for it - minus what your responsibility is (the deductible).2008 was an incredible year for a lot of reasons. This was when I had begun watching oil and gasoline prices, and the economics behind this entirely different - yet imperative - sector of our world's economy. 2008 was a heck of a year for it. This was when we saw oil soar above $100/barrel, and gasoline prices made no hesitation to follow suit. This was the first time when gasoline prices spiked above $4/gallon here in mid-Michigan, and when we saw a skyrocketing demand for Toyota Priuses. Economists who follow the effect of oil and gasoline on our economy learned one important lesson from 2008: $4/gallon is that magical number at which people stop buying fuel. Seriously, it's uncanny; more people will buy gasoline at $3.99/gallon than would at $4.05/gallon. 6 cent/gallon difference.
I digress, as I am beside the main point here. Coinciding fairly well with the rise in oil prices was the rapid rise in diesel prices. Many trucking companies were crimped, forced to lay off employees, or go out of business altogether. It doesn't hit the trucking industry too well when it's nearly impossible to find diesel below $4.80/gallon. So to match these rising prices, the price of corn rises as well. Recall that a bushel is 56 pounds. Corn rose to nearly $8/bushel. Obviously, this would make margins razor thin enough to make any ethanol producer uneasy. But VeraSun took a risky approach. VeraSun bought futures contracts for their corn at around $6.50/bushel. This isn't anything out of the ordinary for any industry - buy contracts now to lock in a lower price, or sell them off if the price rises in order to make a profit. However, the reason this was a bad decision for VeraSun was because the price of corn didn't stay above $6.50/bushel for long.
2008 is a year that will live in infamy to so many millions of people across the globe. It would be easier to list folks and economic sectors/businesses that were not adversely affected in some way, shape, or form. Leading up to the landfall of hurricane Ike in September 2008, oil prices once again skyrocketed. After Hurricane Ike became history, and had scooted off into Canada faster than a car on the interstate, oil prices fell off a cliff. Gasoline prices followed. As did corn prices. Reading this, you might ask, "well wouldn't this help VeraSun's profit margins"? Not really. Again, they locked the price of corn in at around $6.50/bushel. This protected them against further price increases, but since it guaranteed farmers $6.50/bushel for their corn, VeraSun was not able to pay a lower price.
Adding salt to the wound was the fact that the oil prices took ethanol demand with them. Ethanol demand also fell off a cliff. Even though gasoline prices were far lower than anyone could have imagined they would ever see again, the amount of driving largely fell as well, until we had some signs of economic recovery after the new year in 2009. Not to mention the fact that E85 prices eventually stopped falling - sooner than gasoline prices did. Check out this screenshot of archived prices from the site e85prices.com, around November 2008.
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Now to put the proverbial nail in the coffin on VeraSun, this was the time of the financial collapse. Washington is debating the merits of bailing out the banking system and other sectors of the economy, while debate ensues over whether or not these lenders gave loans that they shouldn't have. As such, the lending portion of the financial sector had nearly come to a screeching halt. No creditor was willing to lend VeraSun money so that they could borrow their way through this crisis. That may have been possible if the financial collapse hadn't happened, or if VeraSun wasn't already in so much debt.
Come October 2008 though, the damage had been done. VeraSun had initially announced filing for Chapter 11 bankruptcy around Halloween of 2008, with the intent to come out of bankruptcy stronger than ever. Unfortunately, this did not happen. Not long after their filing, VeraSun was forced to go through liquidation. All of their assets were wiped out from the company, and VeraSun virtually ceased to exist. Looking back at this admittedly with hindsight bias, had I been doing much the same type of advocacy work then that I continuously embark on today, I don't know how I would have handled it. 2008 was depressing to so many people just because of the events of the final four months, and I can't imagine that ethanol enthusiasts and supporters were any more fortunate. Many ethanol companies survived, not least of which include the Anderson's and Poet, which is now the largest ethanol producer in the country by production capacity.
While some of VeraSun's plants were sold off to other ethanol companies, a handful of them were sold to AgStar Financial, who then dealt with selling these ethanol plants. Most of them went to Valero, who ended up paying about 30 cents on the dollar. Valero is now able to blend their own ethanol into their own gasoline. Valero is now directly responsible for roughly one in 12 gallons of ethanol produced today in the United States.
From a business standpoint, this was an incredibly wise financial decision.
Thankfully, Valero was unable to buy the plant I work in today. A company that was little known at the time, Carbon Green BioEnergy, agreed to purchase the idled Lake Odessa, Michigan plant from AgStar in May 2009. While Carbon Green BioEnergy is not VeraSun, Carbon Green is being aggressive in getting their product out there. Carbon Green BioEnergy has a program called yellow hose, where participating public retail fuel stations are sold low-cost, pre-blended E85 on the condition that they maintain a minimum of $1/gallon price difference between E85 and regular gasoline.
The sales numbers, comparing the numbers before yellow hose began in October 2013 to the numbers following the launch of the program, are like night and day. Some stations have seen sales increases upwards of 400% year-over-year, and the rate of E85 sales continues to go up. Carbon Green management has talked with a number of fuel retailers and franchisees, has begun working with various public (and private) sector agencies across the state of Michigan, and has also embarked on working with the national ethanol firms and automakers. Carbon Green BioEnergy even decided to install a retail fuel pump right at the plant. It is located on the south side of the property, open to the public 24/7, and accepts most major credit cards. We have now seen folks from numerous walks of life and sources of employment fill up at the station. In fact, the sales volume has been so high, that we had to shut down the pump on July 6th because the E85 tank had run empty! The only accessible side of this lone pump is selling upwards of 1,400 gallons daily of E85... and this is not accounting for the E15, E30, and E10 regular sold. The word of mouth is continuing to get out, and we have folks coming from as far away as Lansing to fill up at this station. It is a guaranteed outlet for the company's product, and it is increasing awareness of the ethanol plant. Folks are learning more about E85. Why no other ethanol plant/producer has emulated this idea is beyond me.
So we circle back to the original topic of discussion. Where would we all be today if Valero had bought this idled ethanol plant? Where would we be if VeraSun had not acquired US BioEnergy? What would have happened had VeraSun made different business decisions and had been able to survive the 2008 financial meltdown? Answers to these questions result largely out of speculation... but there's a reason I've always passed my history classes with flying colors. History has always fascinated me personally, and no era is more interesting than World War II to Watergate, or 2007 to present. The way my mind works is that while I don't have all of the answers to these questions, I'm very curious about how a little change in events could completely change where I am personally, or where many others are. If you were completely unaffected by the 2008 financial crisis, please do not hesitate to contact me and tell me your story. Up until I learned more about VeraSun, I thought I was unaffected. In 2008, I was only 15, and was still nearly two years away from even being allowed to begin segment one of driver's ed. I had no need to work, had no car, and both of my parents had (and still have) jobs with an enormous amount of job security. I'm lucky. Not so many people are as fortunate. But up until recently, I thought I had been largely untouched by the financial collapse of 2008. Moral of the story is appreciate what you have, what you have accomplished, and where you are in life. You should never take any of these things for granted, and always appreciate how events of times past have led to the successes and positive moments you have had and continue to have.
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