The most worthless bailout yet?
The Wall Street Journal ran a piece a couple of days ago about the government bailout that the ethanol industry is pushing the government for, An Ethanol Bailout?. Ethanol producers are really hurting right now (I guess that's what happens when you produce a worthless product...which is exactly what fuel made from corn is in its current form). The price of ethanol fallen from $2.90/gallon to $1.60/gallon over the past several months. Even with the absurd government subsidities (more than $25 BILLION worth over the past two decades) that are already in place, producers are barely breaking even.
The industry's lobby group, the Renewable Fuels Association, is petitioning the government for $1 billion in immediate short-term credit and an additional $50 billion in loan guarantees to finance expansion (that's all we need is more ethanol plants, good grief).
Possibly the worst part of the group's proposal is its request that the government raise the current 10% limit on how much ethanol can be added to gasoline for conventional cars and trucks. Wait a minute...perhaps this isn't a bad idea after all. We could kill two birds with one stone. By eliminating the cap on how much ethanol can be blended with gas the government would help out ethanol producers and automakers. The producers would sell more ethanol and automakers would sell more cars...when everyone's car breaks! Other than the GM cars that can run on E85, the cars that are on the road today are not made to run on that much garbage fuel!!!!
Even after being as beaten up as they have been, I still think that the public ethanol producers make great CAPS shorts. Riding VeraSun into bankruptcy certainly was a winning trade. The only thing that scares me here is the potential for additional government involvement. That's why I would never put real money into shorting an ethanol company (if I could even get shares to short).
It will be interesting to see what the new administration does on this front. Ethanol companies have been a major supporter of Obama. I wonder if he will be willing to throw them a bone.