The ethanol market this week will focus on:
- the corn market ahead of Monday’s weekly Crop Progress report,
- gasoline prices, which rallied last week in sympathy with the stock market, and
- the ethanol demand and inventory situation as reflected in Thursday’s monthly EIA ethanol report for May.
CARD study paints much less dire situation if Congress does not extend ethanol tax credits
A study by the Center for Agricultural and Rural Development (CARD) at Iowa State University released last week predicted much less dire consequences if Congress fails to extend the 45-cent ethanol tax subsidy and the 54-cent tariff on imported ethanol. Specifically, the study forecasted that only 300 jobs would be lost in 2014 and that ethanol prices would fall by only 12 cents per gallon per gallon in 2011 and by 34 cents in 2014. The study forecasted that U.S. ethanol production would still increase to 14.5 billion gallons by 2014 and that U.S. imports of Brazilian ethanol would amount to only 740 million gallons or less than 5% of the total by 2014. These forecasts are much less dire than forecasts by groups like the RFA and Growth Energy. CARD’s more modest forecasts mean the failure of Congress to extend ethanol tax measures by year-end, while painful, may not be as much of a disaster as earlier thought.
Ethanol production mildly below record high
The EIA weekly ethanol data released last Wednesday indicated that U.S. ethanol production in the week ended July 16 rose by 1.8% w/w to 836,000 barrels per day (bpd), which was only 2.3% below the record high of 855,000 bpd posted in the week ended July 2. Inventories rose by 1.0% to 835 where they were just 0.2% below the recent record high of 19.921 million barrels.
Ethanol Market Action
August CBOT Ethanol futures prices last week extended the 4-week rally to post a new 2-month high and close slightly higher by 0.5 cents (+0.3%) at $1.616 per gallon. Ethanol prices were supported by technical strength and the 3.6% rally in gasoline prices, but were undercut by the sharp 6.0% sell-off in corn prices and the rise in weekly ethanol production and inventories.
August gasoline futures prices posted a new 1-month high last week and closed 7.36 cents higher (+3.6%) at $2.1222 per gallon. The main bullish factors was the strength in stock prices. Tropical Depression Bonnie caused some worries early in the week as it developed in the Gulf of Mexico but it hit shore in Louisiana on Sunday with only 30 mph winds and did not seriously disrupt oil production. Ethanol lagged the rally in gasoline prices and the spread of July ethanol prices minus gasoline prices last week fell by 6.9 cents to -$50.6 cents.
September corn futures prices last week fell back from the previous week’s 4-1/2 month high and closed the week down 23.5 cents (-6.0%) at $3.7125 per bushel. Bearish factors included long-liquidation pressure, the weekly Crop Progress report that showed continued early development of the crop, and heavy rains across key corn growing areas in the Midwest that should improve yields. The July ethanol-corn crush margin last week rose 7.5 cents to 27.6 cents/gallon, recovering from the previous week’s 13-month low of 20.1 cents per gallon. Including DDG, the corn for ethanol crush margin rose by 7.5 cents to 55.2 cents/gallon.
July 28: EIA Weekly Petroleum Status Report
July 29: EIA May Monthly Ethanol Report
Aug 12: USDA WASDE Crop Supply-Demand
September: EPA’s E15 decision due
Disclosure: No positions