The majority of the time, the statement that "where corn markets go, the ethanol market will follow" holds true. But this correlation between the corn market and the ethanol market has been strained during the last week.
On Wednesday, the monthly supply and demand report posted lower-than-expected carry-outs 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 for now, and are 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 during the last week.
Ethanol futures prices at the same time did become very positive, but increased just 0.5 cents per gallon. The reason for this surrounds the movement of RBOB gasoline price levels, and more importantly the growing expectations that gasoline demand may remain extremely sluggish through summer's driving season.
Lower gasoline demand leads 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 firstname.lastname@example.org