The majority of the time, the statement that "where corn markets go, the ethanol market will follow" holds true. But this relationship between the correlation of the corn market and the ethanol market has been stained over the last week. On Wednesday, the monthly USDA supply and demand report posted lower-than-expected carryouts for corn markets. This was countered in the ethanol market by growing ethanol inventory levels in the weekly EIA report. What happened through the price levels indicates that the corn and ethanol markets are not on the same path right now, and barely even going in the same direction. For the week, May corn futures gained 29 cents per bushel. This adds nearly 10 cents to the production costs of ethanol producers over the last week. Ethanol futures prices at the same time did move positive, but increased just 0.5 cents per gallon. The reason for the division in price direction surrounds the movement of RBOB gasoline price levels, and more importantly, the growing expectations that gasoline demand may remain extremely sluggish through the summer driving season. Lower gasoline demand translates to weaker ethanol demand, no matter what the movement in the corn market is. Long term, the corn and ethanol market will likely move back to a typical price relationship, but for now, ethanol traders are more concerned about future demand than current production costs.
Rick Kment can be reached at email@example.com