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U.S. Ethanol exports are helping to alleviate the current ethanol oversupply situation; CRB/CME Group Weekly Ethanol Outlook Report

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The ethanol market this week will focus on:
- the corn market ahead of Monday’s USDA weekly Crop Progress report and Thursday’s monthly USDA Crop Production and WASDE reports,
- gasoline prices, which remain near the lower end of the recent range, and
- the ethanol supply/demand situation where the surplus situation needs to be addressed either through higher domestic demand or expanding exports.

U.S. ethanol demand in March rose to a record high of 823,000 barrels/day (bpd), which was up +5.0% m/m and +27.8% y/y, according to a report released last Tuesday by the Renewable Fuels Association (NYSEMKT:RFA).  However, demand was below March production of 847,000 bpd meaning the U.S. ethanol industry in March had a surplus of 24,000 bpd, which amounted to 2.9% of production.  The U.S. ethanol industry ran a surplus for the five straight months through March.  The RFA said that inventories in March rose to 23.9 days from 23.8 days in February, which was a 1-year high but was still slightly below the early-earlier March 2009 figure of 24.3 days.  Ethanol inventories are still not excessive and should start coming down somewhat now that the summer driving season has arrived with higher demand for fuel.

The RFA has started highlighting U.S. ethanol export figures.  The RFA said that U.S. ethanol exports in March reached a record high of 48.3 million gallons, up from 13.5 million gallons in January and 21.7 million gallons in February.  That means that 4.4% of U.S. March ethanol production was exported overseas, which is a significant figure and indicates that the U.S. ethanol oversupply situation is being alleviated to some extent by exports.  That takes some of the downward pressure off ethanol prices from the ethanol industry’s current production surplus.
July CBOT Ethanol futures prices last week fell to a 2-month low and closed the week down 2.4 cents (-1.5%) at $1.570 per gallon.  Ethanol prices were pressured by the 1.5% sell-off in gasoline prices and the 5.3% sell-off in corn prices.  Commodity prices were hurt in general by last week’s 1.7% rally in the dollar index and by last Friday’s weaker-than-expected private payroll report of +41,000 (vs the +180,000 consensus).

Ethanol/Gasoline – July gasoline futures prices last week closed 3.13 cents lower at $1.9953 per gallon after last Friday’s payroll report caused an overall sell-off in stock and commodity prices.  Gasoline prices remain near the bottom of the sharp sell-off seen in May, which was caused mainly by hedge fund liquidation of commodities and by concern that the European debt crisis will undercut global economic growth and fuel demand.  The spread of July ethanol prices minus gasoline prices last week rose by 0.7 cents to -42.5 cents, which was well above the recent 1-3/4 year low of -77.0 cents.

Ethanol/Corn – July corn futures prices fell to a new 9-month low last week and closed down 19.0 cents (-5.3%) at $3.40 per bushel. Corn prices were undercut last week by the USDA’s upgrade in the good-to-excellent corn crop condition to 76% from 71% the previous week, which was well above the year-earlier level of 70%.  The July ethanol-corn crush margin last week rose by 4.4 cents to 35.6 cents per gallon, mildly above the recent 1-year low of 25.1 cents.  Including DDG, the corn for ethanol crush margin closed up 4.4 cents at 67.1 cents per gallon.

Ethanol Calendar
- June 9:  Weekly DOE Gasoline Inventories
- June 10: USDA WASDE Crop Supply-Demand
- June 29: EIA Monthly Ethanol Report
- Summer: EPA’s E15 decision due

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