Rodney Johnson - Without Warning

On February 23rd, I wrote in this column, titled A Few Good Men, about former military general Wesley Clark and how he was named co-chairman of Growth Energy, a new biofuels group/association.  I stated they have four  primary objectives, which Clark would be directly focused on delivering against.  They were:

1. Help move the blending cap from the current 10%, to 15-20%
2. Increase the perceived importance of ethanol as a part of national and energy security
3. Maintain the current subsidy program in place, which is due for renewal
4. Position the industry as one that should not be allowed to fail

Today, I believe the importance of delivering on point #1 is quickly diminishing and the importance of numbers 2,3 and 4 are increasing.  If you were to follow the biofuels marketplace, you’d realize that biofuel plants are shutting down at an alarming rate.  The reason being, they simply aren’t profitable in today’s marketplace.  Crude oil is too low and their feedstock (mostly corn or soybeans) too high.  With many of these facilities either shutting their doors or considering this alternative, a shortage of ethanol could quickly emerge.  In turn, remaining production sites would be unable to meet the ethanol inclusion mandates in place.  The shortfall would be met by lowering the standard (by offering exceptions) or start importing ethanol (most likely source, Brazil). 

So as I iterated in my initial post, Growth Energy will be marching up to Capitol Hill, demanding their fair share of stimulus dollars. This industry is no longer focused on growth, but rather survival. At least that’s the way I see it.

Wesley Clark, retired general, former presidential candidate and touted as a possible vice presidential running mate for President Barack Obama was recently named co-chairman of Growth Energy which is described as “a new, proactive group committed to the promise of agriculture and growing America’s economy through cleaner, greener energy.”   On the surface, I found it interesting that an agribusiness association would choose a retired general as their figurehead.  Most of the time, generals find their next career in military related industries.  What gives?

In recent months, the financial health of the once fast growing ethanol industry has been challenged.  For instance, the second largest ethanol producer Verasun is in bankruptcy proceedings, and several others are operating in the red.  To makes matters worse, the industry is quickly approaching the ethanol saturation point at the current 10% gasoline blending cap.  One of the recent stated goals of Growth Energy is to increase the blending cap to 15-20%.

Obviously, Wesly Clark was offered this new, high profile position for numerous reasons, such as his credentials and his ties to the legislative body.  His marching orders are simple. 

1. Help move the blending cap from the current 10%, to 15-20%
2. Increase the perceived importance of ethanol as a part of national and energy security
3. Maintain the current subsidy program in place, which is due for renewal
4. Position the industry as one that should not be allowed to fail

These are tall orders coming from an industry that could be desperate.  Does Clark have the influence and stature to make it happen?  If you’re an investor in the ethanol industry, you can see the desperate hole you’re in - you have to do something.  But I’m wondering if Clark can make a difference.  From my perspective, he can only maintain the status quo at this point.  Is Clark’s position one of offense, but rather one of defense.  Time will tell.