Is there a biofuels bubble?
The biofuels arena is rife with innovations and the speculation that accompanies them. This emerging industry is also bolstered with government subsidies that are important to encourage investments, but can also give companies and their investors a false sense of financial stability. Moreover, the price of today’s feedstocks (mostly corn) can be quite volatile. Does this add up to a bubble? It’s hard to say. What seems clear is that biofuels companies that are not careful about vetting technologies, investing huge, production-level capital and securing predictable supplies of affordable feedstocks may be short-term players. By the same token, biofuels companies that make prudent technical and financial decisions may soon be in a position to favorably acquire a number of distressed biofuels assets. Bottom-line: for the next few years, the biofuels arena will be characterized by the heightened risks and rewards typically associated with the emergence of any promising new industry.
