The ethanol market this week will focus on:
- corn prices as the market closely watches planting weather and Monday’s USDA weekly Crop Progress report,
- gasoline prices, which saw some long liquidation pressure last week as worries arose about rising OPEC production, and
- ethanol demand, which is strengthening with cheap ethanol prices relative to gasoline.
The US corn-based ethanol industry last week came out swinging in an attempt to pressure the EPA into increasing the blend wall to 15% and pressure Congress into rolling over the 45-cent excise tax and 54-cent import tariff that expire at the end of this year (see news digest items on page 2). The possibility that Congress may not roll-over the tax measures on a timely basis, or severely weaken them, is a near existential threat for the U.S. corn-based ethanol industry. As a result, Growth Energy last week launched a $2.5 million ad program to appeal for continued support of ethanol and both Growth Energy and the RFA attacked the Brazilian ethanol association UNICA for its attempt to help deep-six the U.S. ethanol tax benefits and promote Brazilian sugar-based ethanol as the solution to America’s energy problems. The battle is likely to heat up even more in coming months as the year-end expiration of the tax measures approaches.
May CBOT Ethanol futures prices last week rallied fairly sharply to post a new 2½-week high and close the week up 4.5 cents (+2.9%) at $1.582 per gallon. Bullish factors included (1) technical short-covering after the sharp 3-month-long sell-off, and (2) last week’s 5.3% rally in corn prices. Bearish factors included the -0.5% sell-off in gasoline prices and last Friday’s weakness in commodity prices tied to stock market sell-off and the news of Goldman Sachs fraud allegations by the SEC.
Ethanol/Gasoline – May gasoline futures prices fell sharply last Friday to close the week down 1.23 cents (-0.5%) at $2.2770 per gallon. Gasoline prices fell last Friday on technical long liquidation pressure and on the Goldman Sachs fraud suit by the SEC, which pressured the stock market and led to selling in the commodity sector as well. There was also talk about crude oil oversupply with a continued increase in OPEC production and lagging demand in the developed world. Due to strength in ethanol prices, the spread of May ethanol prices minus gasoline prices last week rose by 5.7 cents to -69.5 cents, which was mildly above the recent 20-month low of -76.4 cents.
Ethanol/Corn – May corn futures prices last week rallied fairly sharply to post a new 2-week high and close up 18.25 cents at $3.64 per bushel. Corn prices rallied last week on (1) technical short-covering from the recent 7-month low, (2) talk about a weakening El Nino weather pattern that could increase the odds for a drought this summer in the U.S. midwest, and (3) hopes for increased Chinese corn import demand after the strong Chinese Q1 GDP figure of +11.9%. Last week’s rally came despite improved planting weather, which should allow farmers to make quick progress on getting the corn crop into the ground. This Monday’s USDA Crop Progress report could show that corn planting climbed into the mid-teens, from 3% in the week ended April 11, on broadly favorable planting conditions (the 2-decade record is 18% by April 17 in 2004). The May ethanol-corn crush margin last week fell by 2.0 cents to 28.2 cents per gallon, mildly above the recent 9-month low of 25.1 cents.
Apr 21: Weekly DOE Gasoline Inventories
Apr 29: EIA Monthly Ethanol Report
May 11: USDA WASDE Crop Supply-Demand
Late Summer: EPA’s E15 decision due
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