The ethanol market this week will focus on:
- the corn market ahead of Monday’s USDA weekly Crop Progress report,
- whether gasoline prices can stabilize after having plunged by 21% in the past 3 weeks, and
- the ethanol supply/demand situation ahead of Thursday’s March EIA monthly ethanol report, which could show another new record high in U.S. ethanol production.
The ethanol market is awaiting this Thursday’s monthly ethanol report from the Energy Information Administration (NYSEMKT:EIA) with some trepidation considering that the report could show a new record high in U.S. ethanol production and rising inventories. The return of ethanol profitability last summer caused the U.S. ethanol industry to ramp up production to take advantage of nearly all of its capacity. U.S. ethanol production in February reached a record high of 833 million barrels per day, which was up 1.4% m/m and 33.6% y/y. The February production level implied a production/capacity utilization ratio of 94.5%, meaning the U.S. ethanol industry is running nearly flat out.
Luckily for the ethanol industry, demand for ethanol from blenders has been strong because of favorable economics with ethanol still being 36.9 cents cheaper than gasoline and 81.9 cents cheaper including the 45-cent ethanol excise tax credit. The strength in demand has kept ethanol inventories under control, thus providing underlying support for ethanol prices. There were 22.7 days worth of ethanol inventories in February, which was a 1-year high but was below the previous year’s figure of 26.4 days. Regarding demand, the ethanol industry needs the EPA in the next 1-2 months to boost the blend wall to at least E12 in order to allow demand to keep rising, absorb the large ethanol supply, and support ethanol producer profitability.
June CBOT Ethanol futures prices posted a 3½-week low last Thursday but then recovered somewhat on Friday to close the week down 2.7 cents (-1.7%) at $1.592 per gallon. The main bearish factor was downward pressure from gasoline prices, which fell sharply by 8.0% on the week. The main supportive factor was the mild 1.7% rally in corn prices.
Ethanol/Gasoline – June gasoline futures prices last week extended the sharp 3-week sell-off to 21% and closed the week down 16.96 cents (-8.0%) at $1.9612 per gallon. The petroleum sector was hit again last week by fears that the European debt crisis will depress global economic growth and fuel demand. The spread of June ethanol prices minus gasoline prices last week rose by 14.3 cents to -36.9 cents, which was well above the recent 1-3/4 year low of -77.0 cents.
Ethanol/Corn – July corn futures prices rallied last Friday to close the week up 6.00 cents (+1.7%) at $3.69 per bushel. Bullish factors on Friday included the news of additional Chinese corn buying, the weaker dollar, and technical short-covering. However, near-term growing weather is favorable and last Monday’s USDA Crop Progress report indicated that 87% of the crop has been planted (versus the 5-year average of 78%) and that 55% of the crop has emerged (versus the 5-year average of 39%). The July ethanol-corn crush margin last week fell by 4.7 cents to 28.5 cents per gallon, slightly above the recent 10-month low of 25.1 cents. Including DDG, the corn for ethanol crush margin closed down 4.4 cents at 60.1 cents per gallon.
- May 26: Weekly DOE Gasoline Inventories
- May 27: EIA Monthly Ethanol Report
- June 10: USDA WASDE Crop Supply-Demand
- Summer: EPA’s E15 decision due
Read the full PDF report with ethanol news digest and graphics at http://cmegroup.barchart.com/ethanol/archive/1274707765CME-Weekly-Ethanol-24-May-2010.pdf
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