U.S. Ethanol Production Remains Below Record Levels

by: Biofuels

The ethanol market this week will focus on:

  • the corn market ahead of Tuesday’s weekly Crop Progress report,
  • gasoline prices, which have been sinking with stock prices and the global economic data, and
  • ethanol demand, which will likely fade a bit with ethanol prices losing 20 cents of their price advantage against gasoline last week.

Ethanol production remains below record - The EIA monthly and weekly ethanol data released last Wednesday contained no suprises and had little net market impact. U.S. ethanol production in April fell by 1.8% m/m to 832 million barrels/day from the record level of 847 million bpd seen in March. The weekly EIA data indicated that ethanol production in the week ended June 25 fell by 1.7% w/w to 832 million bpd, which was also 1.7% below the record high of 847 million bpd posted in March. The ethanol industry in April continued to run nearly flat-out at 94.4% of capacity, meaning there is not much room to further increase production.

Meanwhile, ethanol inventories in April were above average but not burdensome. April inventories were at 23.6 days of usage, which was 0.7 percentage points above the 4-year average for April of 22.9 days. The weekly ethanol data for the week ended June 25 showed ethanol inventories at 819 million gallons, which was down by 0.9% from the April monthly level of 827 million gallons.

Ethanol market action - August CBOT ethanol futures prices fell sharply early last week on weakness in gasoline prices but then rallied sharply later in the week due to the sharp rally in corn prices prompted by last Wednesday’s USDA reports. August ethanol prices last week closed up 1.7 cents (+1.1%) at $1.550 per gallon. The bullish impact on ethanol prices from last week’s sharp 6.6% rally in corn prices counteracted the bearish impact of the 8.4% plunge in gasoline prices during the week.

Ethanol/gasoline – August gasoline futures prices continued lower last week to post a new 5-week low and close sharply lower by 18.11 cents (-8.4%) at $1.9777 per gallon. Gasoline prices fell on stock market weakness and general pessimism about world economic growth and fuel demand. The sharp sell-off in gasoline prices made ethanol prices less competitive, with the spread of July ethanol prices minus gasoline prices last week rising by 19.8 cents to a 1-month high of -42.8 cents.

Ethanol/corn – September corn futures prices last week rallied sharply to post a new 5-week high and close 23 cents higher (+6.6%) at $3.7250 per bushel. The USDA reduced its corn planting estimate by 1% to 87.872 million acres and pegged June 1 ending stocks at 4.31 billion bushels, which was substantially below the market consensus of 4.62 billion bushels. The smaller-than-expected ending stocks report suggested that strong demand substantially reduced corn stocks and that the 2009/10 and 2010/11 marketing year carry-overs will be smaller than earlier expected. That bullish turn of events for corn prices indicates that corn prices have likely put in their low for the near-term and that U.S. ethanol producers face narrower profit margins this year than earlier thought. The July ethanol-corn crush margin last week fell by 5.5 cents to 21.5 cents per gallon, which was a new 13-month low. Including DDG, the corn for ethanol crush margin fell by 7.4 cents to 49.0 cents/gallon.

Ethanol Calendar

  • July 8: EIA Weekly Petroleum Status Report
  • July 19: USDA WASDE Crop Supply-Demand
  • July 29: EIA Monthly Ethanol Report
  • September: EPA’s E15 decision due

Read the full PDF report with ethanol news digest and graphics here.

Disclosure: No positions