The Ethanol Market This Week Will Focus on:
- the corn market ahead of Monday’s weekly Crop Progress report,
- gasoline prices, which faded late last week due to weak US economic data and the stock market selloff, and
- ethanol demand, which is strong enough at present from the summer driving season to offset near-record production.
- Congress Takes Up Ethanol Subsidy Extension - House Democratic leaders have produced draft legislation to extend the current excise tax subsidy for fuel blenders. The current 45-cent-per-gallon subsidy expires at the end of this year. The draft bill would cut the tax subsidy by 20% to 36 cents and extend the tax credit by one 1 year. The ethanol industry is very worried about the year-end expiration of the subsidy given the debacle in the US biodiesel industry, which has been forced to virtually shut down production since Congress has yet to roll over the biodiesel subsidy that expired last year. If Congress fails to extend the ethanol subsidy, the US ethanol industry warns that the result would be mass bankruptcies and layoffs. The US ethanol industry would prefer to have a multi-year subsidy that reduces uncertainty for investors and companies. However, Congress is under pressure to reduce subsidies due to the bulging US budget deficit and the ethanol industry at this point would be relieved with at least a 1-year extension. Growth Energy, seeing the handwriting on the wall about the difficulty of getting subsidy roll-overs, is proposing a fairly radical plan of phasing out the subsidy altogether in exchange for E85 vehicle production mandates and incentives for installing more E85 pumps across the country (see news digest links).
- Ethanol Production Backs Off From Record High - The EIA weekly ethanol data released last Wednesday indicated that US ethanol production in the week ended July 9 fell by 4.0% to 821,000 barrels per day (bpd) from the previous week’s record high of 855,000 bpd. Inventories dipped by 1.2% w/w to 19.674 million barrels from the previous week’s record high of 19.921 million barrels.
- Ethanol Market Action - August CBOT Ethanol futures prices last week extended the 3-week rally to post a new 1-month high and close up 1.6 cents (+1.0%) at $1.611 per gallon. The main bullish factor was the continued rally in corn prices. Factors keeping a lid on prices included the 1.0% selloff in gasoline prices and continued concern about ethanol inventories with near-record ethanol production.
- Ethanol/Gasoline – August gasoline futures prices moved sideways last week and closed slightly lower by 2.14 cents $2.0486 per barrel. Gasoline prices fell last Friday on the poor consumer confidence data and last Friday’s 2.9% sell-off in the S&P 500 index. The spread of July ethanol prices minus gasoline prices last week rose by 3.7 cents to -$43.8 cents.
- Ethanol/Corn – September corn futures prices last week extended the 3-week rally to post a new 3-1/2 month high and close up 11.25 cents (+2.9%) at $3.9475 per bushel. Corn prices continued to receive a boost from technical short-covering and the recent USDA reports, which indicated strong demand, reduced corn planting acreage, and lower carry-overs for both the old and new crops. The July ethanol-corn crush margin last week fell slightly by 1.5 cents to post a new 13-month low of 20.1 cents per gallon. Including DDG, the corn for ethanol crush margin fell by 1.5 cents to 47.7 cents/gallon.
- July 21: EIA Weekly Petroleum Status Report
- July 29: EIA Monthly Ethanol Report
- August 12: USDA WASDE Crop Supply-Demand
- September: EPA’s E15 decision due
Disclosure: No positions