In May of last year, I took a look at competitive forces in the corn ethanol industry. While I was rather negative on the industry at the time, when ethanol stocks fell in the summer and fall of 2007, I called the bottom much too soon, and decided to dabble in the industry.
I thought that Pacific Ethanol's (NASDAQ:PEIX) strategy of arbitraging the costs of transporting corn vs. the costs of transporting ethanol and distillers dried grains would lend them some protection from industry overcapacity. Whatever protection they might have had was not enough.
With current liabilities exceeding current assets, and operating cash flow from the last 6 months exceeding cash on hand, PEIX will probably need to raise new capital to stay afloat, something I doubt the company can do on favorable terms in today's climate.
DISCLOSURE: No position.