Tuesday, December 12, 2006

It's Tough Bein' Green

It's not that easy bein' green,
Having to spend each day the color of the leaves,
When I think it could be nicer,
Being red or yellow or gold,
Something much more colorful like that.
But green's the color of spring,
And green can be cool and friendly-like...

When green is all there is to be,
It can make you wonder why --
But, why wonder? Why wonder?
I'm green, and it'll do fine
It's beautiful!
And I think it's what I want to be.

Bein’ Green sung by Kermit the Frog
“The Muppets Show” - 1972

It is tough being green according to television personality Kermit the Frog. It is not that easy for biofuel producers either considering the rising cost of feed stock and the relentless proliferation in competitors.

Wall Street is to be graced by yet another ethanol producer coming to the public capital markets for financing. Last Friday, December 8th, Denver-based
BioFuel Energy, LLC filed for an initial public offering. The stock is expected to trade on the Nasdaq National Market under the symbol BIOF. J.P. Morgan Securities, Inc. and a host of top tier firms have signed up to place stock that estimated to bring in $300 million for BioFuel to build four new ethanol plants in Iowa, Illinois and Kansas.

Even though their “green” issues are of “substance” rather than Kermit’s “appearance” problem, ethanol producers are trying to keep up a brave face. Apparently, they also think “it’s what [they] want to be.” In previous posts to this web log in August 2006 - “
Adventures in Wonderland,” “Polk Salad Annie,” and “Stalks and Stocks” - I advanced some concerns about the choice of corn as a feedstock and otherwise poked a little fun at ethanol promoters.

Clearly, there will be an evolution in the biofuel industry as producers shift among feed stocks, technologies, location choices, and transportation alternatives. Biofuel is still shaping up as a small cap sector play, but it is not likely that every company will offer a successful investment opportunity. This post is the first in another series outlining what may be the fault lines in the biofuel industry and what tools
Crystal Equity Research is using to select and otherwise winnow out the grain from the chaff. We will be looking at the economics of feed stocks (corn, switch grass, beer, cow manure, etc.), by-products (distiller grain, etc.), transportation/distribution systems (truck, rail, pipelines, co-location, etc.) and a few other factors that will impact biofuel growth and profits.

Neither the author of the Small Cap Copy web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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