VeraSun - One Giant Bet That Went Wrong
Details are emerging of how VeraSun, the ethanol firm that filed for Chapter 11 bankruptcy protection last week, got itself into so much trouble.
Abandoning its traditional use of short hedges in July, the firm, convinced that corn prices would continue to rise, entered into a number of "accumulator contracts" to cover corn requirements for the third and fourth quarters.
What's an accumulator contract?
A high-risk strategy that allows you to buy a specified volume of corn below the then-prevailing market price if prices rise, but also commits you to buying DOUBLE the intended volume at a set price if futures prices decline.
VeraSun said in a report filed with the Securities and Exchange Commission in September that strategy resulted in their incurring average corn prices between $6.75 and $7.00 a bushel in the third quarter, contributing to third quarter losses of $100 million.
More info here: Put it all on 33 black please
Abandoning its traditional use of short hedges in July, the firm, convinced that corn prices would continue to rise, entered into a number of "accumulator contracts" to cover corn requirements for the third and fourth quarters.
What's an accumulator contract?
A high-risk strategy that allows you to buy a specified volume of corn below the then-prevailing market price if prices rise, but also commits you to buying DOUBLE the intended volume at a set price if futures prices decline.
VeraSun said in a report filed with the Securities and Exchange Commission in September that strategy resulted in their incurring average corn prices between $6.75 and $7.00 a bushel in the third quarter, contributing to third quarter losses of $100 million.
More info here: Put it all on 33 black please
