Ethanol Blog
George Orwel DTN Energy Reporter

Wednesday 12/04/13

Ethanol Production Eases Despite High Profit Margins

Production at U.S. ethanol plants eased 14,000 bpd to 913,000 bpd during the week ended Nov. 29, according to data out Wednesday from the Energy Information Administration. The decline has prompted head scratching by at least one analyst, who believes output should ramp higher amid very strong producer margins.

"The biggest mystery is why production isn't going [higher]," commented Jerrod Kitt, strategist for the Linn Group, Chicago, Ill. "Why aren't we producing [more] with a margin average of 90 cents a gallon? That's the best margins you've seen, even better than 2011. You have to go back to 2006 or 2007 to see anything comparable."

EIA showed ethanol supply remains low, especially in the New York Harbor market, with spot values in the Harbor and at the key Chicago market climbing each day this week in the product-short markets.

Myke Feinman can be reached at myke.feinman@telventdtn.com.

(ES)

Posted at 1:44PM CST 12/04/13 by George Orwel
Comments (2)
"The biggest mystery is why production isn't going [higher]," commented Jerrod Kitt, strategist for the Linn Group, Chicago, Ill." Comments: 1.Current ethanol producers are carrying LOSS on their books; they have to make up to get get above water. 2.Past comments suggest that the 'spread or margins' is profit. Far from it, there is debt and operational costs. 3rd. Additional supply brings prices down and you have a lost instead of a profit. In a market where demand is cap (RFS), and the additonal opportunities (E15 E85) is uncertain, there is no 'head scratching' in making a decision not to fire up new plants. With winter coming and train transport being subject to delays, spike in margins due to low inventory will be at a high risk. There is value in bying ahead. Check the front-month CME orders.
Posted by Eddy Lahens at 2:08PM CST 12/04/13
I also believe there are some older plants that run more efficiently at a slower rate and find it not feasible to raise production. And also logistics of rail cars is an issue as ethanol is having to compete with oil companies to get cars.
Posted by GWL 61 at 2:40PM CST 12/05/13
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