Ethanol Blog

A Crack in Ethanol's Armor

Rick Kment
By  Rick Kment , DTN Analyst

The strength previously seen in the ethanol market seems to be quickly eroding, and this last week could be the mighty blow that may cause traders and overall industry watchers to focus on a changing long-term trend.

On the continuous weekly charts, this past week was the first move below $2 per gallon since January of this year. With a weekly price loss of nearly 20 cents per gallon, the ethanol complex has fallen nearly 40 cents per gallon in the first two weeks of September.

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After the Labor Day weekend, overall driving demand tends to erode, but the combination of sharply lower corn prices and growing ethanol supplies are creating more pressure in the ethanol complex than can be passed off on seasonal demand slumps.

The RBOB gasoline price has been steadily eroding since June, and the trend is not changing on the continuous weekly charts. But ethanol prices have done an impressive job of holding their own with strong production margins and cheaper corn helping to sustain the trend.

Well, that was until the last two weeks.

It is uncertain just how much additional pressure will develop through the ethanol market, but the availability of cheaper corn is expected to continue to give ethanol producers incentive to brew more ethanol through the end of the year. At a time when ethanol demand is likely to continue to steadily erode, this may once again push inventory levels back to higher levels, and bring worries about another ethanol glut.

Rick Kment can be reached at rick.kment@dtn.com

(ES)

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Unknown
9/14/2014 | 7:15 PM CDT
Call your Congressman today. Without massive government subsidy, ETOH faces a grim future.