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The biofuels editorial staff at CRB Barchart issues a free weekly newsletter on the ethanol market containing market analysis, news and charts. This report, which is sponsored by the CME Group, is helpful for those trading the ethanol, RBOB gasoline, and feedstock markets as well as the stocks... More
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  • Ethanol production in February hits record high but inventories remain under control 0 comments
    May 3, 2010 9:24 AM | about stocks: ADM, ANDE, AVR, BIOF, CZZ, EPG, GPRE, GRH, GU, NBF, PEIX, VLO, VRNM

    The ethanol market this week will focus on:
    - corn prices as Monday’s USDA weekly Crop Progress report is likely to show record 70-75% corn planting progress, which will boost the chances for a record corn yield,
    - gasoline prices, which are coming into this week on a strong note after last Friday’s new 19-month high, and
    - the ethanol supply/demand situation where strong demand is soaking up most of the record production levels.

    US ethanol production hits new record high - The EIA reported last week that U.S. ethanol production in February hit a new record high of 833 million barrels per day, up 1.8% m/m and 28.7% y/y.  Luckily for ethanol prices, ethanol demand also rose to a record high of 795 million barrels per day, up 1.4% m/m and 33.6% y/y.  The fact that ethanol is 77 cents per gallon cheaper than gasoline ($1.22 per gallon cheaper including the 45 cent blending tax credit) is causing strong demand for ethanol from blenders who can lower the wholesale cost of their fuel mix by using more ethanol.

    The strength in ethanol demand kept inventory levels under control.  Ethanol inventories in February were unchanged from January at 22.7 days of reserves, according to the Renewable Fuels Association.  The 22.7 day supply of ethanol is a 1-year high and continues to be a bearish factor for ethanol prices, although the current supply of ethanol is lower than last February’s level of 26.4 days.  The EIA report indicates a mildly bearish supply/demand picture for ethanol, but one that may leave some room for upside price movement if gasoline prices can continue higher.

    June CBOT Ethanol futures prices last week rallied for a third week to post a new 6-week high and close mildly higher by 2.5 cents (+1.6%) at $1.629 per gallon.  Ethanol prices were supported by (1) the 1.7% rally in gasoline prices and the 3.9% rally in corn prices, (2) relief that inventory levels remained under control in February, and (3) technical buying with the new 6-week high.  Bearish factors limiting gains included the 0.6% rally in the dollar index and the record high in February ethanol production.

    Ethanol/Gasoline – June gasoline futures prices last week rallied to a new 19-month high and closed up 4.02 cents (+1.7%) at $2.3994 per gallon.  Bullish factors last week included (1) technical buying with the new 19-month high, (2) last Friday’s report that Q1 GDP rose +3.2% and that Q1 consumer consumption rose +3.6%, and (3) the BP oil leak in the Gulf of Mexico that may yet cause disruptions to Gulf oil production, shipping and refining.    The spread of June ethanol prices minus gasoline prices last week fell by 1.5 cents to -77.0 cents, which was a new 1-3/4 year low.

    Ethanol/Corn – July corn futures prices last week posted a new 6-week high and closed up 14.25 cents at $3.7525 per bushel.  Corn prices started out the week on a weak note after the USDA in last Monday’s weekly Crop Progress report said that corn planting hit a record high of 50% in the week ended April 25.  However, corn prices then improved during the week on strong Chinese buying, the continued strong pace of ethanol production, and improved U.S. economic data.  The July ethanol-corn crush margin last week fell by 1.5 cents to 30.3 cents per gallon, mildly above the recent 9-month low of 25.1 cents.  Including DDG, the corn for ethanol crush margin closed at 60.8 cents per gallon last Friday.

    Ethanol Calendar
    - May 5:  Weekly DOE Gasoline Inventories
    - May 11: USDA WASDE Crop Supply-Demand
    - May 27: EIA Monthly Ethanol Report
    - Late Summer: EPA’s E15 decision due

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    Disclosure: No positions
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