It’s almost comical the amount of money that keeps getting invested in ethanol. I’ve commented on this before, how despite the weak performance of the existing crop of ethanol companies, like VeraSun (VSE), Aventine, (AVR) and Pacific Ethanol (PEIX) investors keep pouring in more money. The latest example: the tepid showing of BioFuel Energy (BIOF), which lowered its offering range from as high as $18 before going public last week at $10.50, where the stock has pretty much stayed. Unlike the others, BioFuel hasn’t even built any plants yet, though it does have a tight tie-up with privately held power Cargill.
On Thursday, a California company called AltraBiofuels announced that it had raised $165.5 million in debt to build more ethanol plants. Last week the Wall Street Journal ran a curious article speculating on ethanol-industry consolidation. I say curious because there doesn’t seem to be any evidence, only wishful thinking of the inevitable.
This is, of course, how bubbles work. They expand and expand well beyond where the pundits expect. Then they pop. This one will too.