The ethanol market this week will focus on:
- corn prices as the market keys on Wednesday’s Prospective Plantings report, which is expected to be in line with the USDA’s forecast in February that planted corn acreage this spring will increase by 3.0% y/y to 89.0 million acres,
- gasoline prices, which faded again last week on long liquidation pressure and the stronger dollar, and
- the ethanol supply situation and whether relatively cheap ethanol prices can spark enough demand to absorb record production.
Changes to the CME Group’s ethanol contracts, announced last December, take effect this Thursday on April 1. These changes will bring the futures contract more in line with current cash market practices. For details click on this Reuters article link.
April CBOT Ethanol futures prices posted a new 7∂-month low last Thursday but then recovered some ground on Friday and closed the week down 1.2 cents at $1.553 per gallon. Bearish factors included (1) the 2.1% sell-off in gasoline prices and 4.9% sell-off in corn prices, (2) the 1.2% rally in the dollar index, and (3) technical weakness with Thursday’s new 7∂-month low. Ethanol prices were supported by the proposed House bill for a 5-year extension of the ethanol tax benefits.
House bill unveiled for 5-year extension of ethanol tax benefits - House bill HR 4940 was unveiled last Thursday, which would extend by 5 years the 45-cent per gallon ethanol excise tax and 54-cent per gallon tariff on imported ethanol. Without new legislation, those measures will expire at the end of this year. An expiration of those measures would cause a sharp drop in ethanol prices and devastate the corn-based ethanol industry. Supporters are taking nothing for granted given that Congress has still not passed the $1 per gallon biodiesel tax credit that expired at the end of 2009 despite the damage from the widespread production shut-downs in the biodiesel industry.
Ethanol/Gasoline – April gasoline futures prices faded to close last week down 4.82 cents (-2.1%) at $2.2074 per gallon, well below the previous week’s 17-month high of $2.3148. Bearish factors included long liquidation pressure with a new 3-1/2 week low, the 1.2% rally in the dollar index, and last week’s report of a 2.1% rise in weekly crude oil inventories. The main bullish factor was the 1.2% decline in gasoline inventories, which left gasoline prices only 1.1% above the 5-year seasonal average, the tightest level in 8 months. The spread of April ethanol prices minus gasoline prices rose by 3.6 cents to -65.4 cents per gallon, which was mildly above the 20-month low of -73.1 cents posted in mid-March.
Ethanol/Corn – May corn futures prices last week fell sharply to post a new 5-month low and close the week down 18.25 cents (-4.9%) at $3.5625 per bushel. Corn prices fell on (1) improved weather that improved the chances for farmers to get into the fields on time to plant corn, (2) worries about the expected 3% increase in corn planting this spring and a near-record corn crop, (3) the 1.2% rally in the dollar index, and (4) technical weakness with the new 5-month low. The weakness in corn allowed the May ethanol-corn crush margin last week to improve by 4.2 cents to 29.6 cents per gallon, mildly above the recent 9-month low of 25.1 cents.
- Mar 31: Weekly DOE Gasoline Inventories
- Mar 31: USDA Prospective Plantings
- Apr 8: EIA Monthly Ethanol Report
- Apr 9: USDA WASDE Crop Supply-Demand
- Late Summer: EPA’s E15 decision due
Read the full PDF report with ethanol news digest and graphics at http://cmegroup.barchart.com/ethanol/archive/1269869193CME-Weekly-Ethanol-29-Mar-2010.pdf
Please see full PDF report for disclaimer and copyright information.
Disclosure: No positions.