The latest EIA data released Thursday morning confirmed what the market shifts saw through the week as ethanol futures tumbled 8 cents per gallon in the last two trading sessions, and more than 12 cents per gallon in less than a week.
Ethanol production at the end of last week increased 4.3%, accounting for a 1.5 million-gallon-per-day boost in production. This new level put total production at 38 million gallons per day. This is a 14.3% increase from levels seen last year at this time.
Total inventory levels of ethanol moved to highs seen last July with a total stock level of 714 million gallons on hand to handle current and future needs. This is a 5.8% gain in stocks in just one week, which indicates that additional gains may continue to develop if production stays on the current course.
Even though at this point ethanol markets are not focusing or even concerned about renewing fears of an "ethanol glut" the rapid increase in production and stocks is creating longer term concerns. If ethanol production moves closer to capacity levels through the spring and early summer before demand ramps up, there will likely be additional aggressive price pressure.
Any price pressure, even if corn prices remain stable, will significantly reduce margins. This could put plants into unprofitable territory once again and renew the pattern seen during the last two years. It is likely that production and inventory levels will move in a wide range before any major shifts are seen in producers changing the focus from production growth to a sustainable level of production.
Rick Kment can be reached at email@example.com
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