Ethanol Takes a Step Forward

by: Biofuels

Poet LLC, the largest U.S. ethanol producer, last week kicked off the collection of corn cobs, leaves and husks to store the biomass needed for its Project Liberty cellulosic ethanol plant in Emmetsburg, Iowa. The 25 million-gallon-per-year plant, slated to begin production in early 2012, will convert corn harvest waste into ethanol, providing farmers with about 10% of additional revenue per acre and producing cellulosic ethanol with an 111% reduction in greenhouse gas emissions versus gasoline. Poet has reduced the cost of cellulosic ethanol to $2.35 per gallon from $4.13 per gallon, and intends to further reduce the cost to $2.00 per gallon by the time the plant starts operation. Poet intends to eventually roll out its Project Liberty corn waste cellulosic technology to other plants across the country and to modify the technology to work with wood chips and switchgrass.

Ethanol Market Action - September CBOT Ethanol futures prices last week extended the 8-week rally to a total of 30%, posting a new 7-month high and closing up 9 cents (+5.1%) at $1.858 per gallon. Bullish factors included the 2.3% rally in corn prices and continued strong demand for ethanol. Ethanol prices also found some support from Wednesday’s weekly EIA report showing that ethanol production in the week ended August 13 fell by 0.7% to 860,000 barrels/day, which was 1.5% below the record high of 873,000 bpd posted July 30. In addition, ethanol inventories fell by 0.7% to 19.205 million barrels where they were 3.6% below the record high of 19.921 million barrels posted in early July.

Ethanol/Gasoline – September gasoline futures prices last week posted a new 3-month low and closed slightly lower by 1.45 cents (-0.7%) at $1.9251 per gallon. Gasoline prices continued to see downward pressure from (1) the weaker US economic data and doubts about fuel demand, and (2) above-average inventories with crude oil and gasoline inventories 5-6% above their 5-year seasonal averages. The relative strength in ethanol prices caused the spread of Sep ethanol prices minus gasoline prices to rise by 10.5 cents to -6.7 cents, the narrowest spread since Dec 2009, although ethanol is still 52 cents cheaper than gasoline including the 45-cent ethanol tax subsidy.

Ethanol/Corn – September corn futures prices last week moved up toward the recent 7-month high and closed the week up 9.5 cents (+2.3%) at $4.2125 per bushel. Corn prices were supported by (1) talk of lower yields due to extreme heat and wet weather, (2) the 2-point decline in the good-to-excellent rating of the corn crop to 69%, and (3) continued expectations for strong exports tied to the Russian grain export ban and Chinese buying. Strength in ethanol prices allowed the Sep ethanol-corn crush margin to rise by 5.6 cents to 35.4 cents/gallon, well above the recent 13-month low of 20.1 cents per gallon. Including DDG, the Sep corn for ethanol crush margin rose by 5.6 cents to 69.2 cents/gallon.

Ethanol Calendar
- Aug 25: EIA Weekly Petroleum Status Report
- Aug 30: EIA June Monthly Ethanol Report
- Sep 10: USDA WASDE Crop Supply-Demand
- September: EPA’s E15 decision due

Disclosure: No positions