Even though ethanol stocks and production fell in the last week of December 2012, there still remains a significant supply challenge in store for the first half of 2013.
As we look back to the past year, one of the main concerns surrounding the ethanol industry was the potential "glut" of supplies available to the market because of increased production of ethanol and strong margins at the end of 2011 before the blenders credit expired.
But the combination of stable to strong production of ethanol through the first half of the year, as well as lackluster demand for both ethanol and gasoline attributed to lower driving demand, kept inventory levels larger than desired through the entire year.
The challenges continue to be compounded as high corn costs have slowed production at some facilities, but producers are still out producing demand levels. Total ethanol inventory at the end of last week were listed at 848.9 million gallons. This amounts to a buildup of 107 million gallons of ethanol over the year.
The expectation is that with holidays now in the rear view mirror, driving demand may continue to struggle through the first quarter of the year. This could further reduce overall blending activity of ethanol and allow inventories to continue to grow.
Rick Kment can be reached at firstname.lastname@example.org