Ethanol Blog
Ethanol Stability Unlikely in Short Term
Ethanol futures have once again set new yearly lows for 2014, falling to $1.66 a gallon late Thursday. The continued pressure in corn prices are reducing overall cost of production for ethanol plants, while seasonal demand shifts and growing production are expected to add even more inventory to the system over the upcoming weeks.
Prices in front-month ethanol futures have fallen 54 cents per gallon since the last week of October. But typically prices do not hit seasonal lows until well into the fourth quarter of the year. For example, in 2013 the seasonal low of $1.607 per gallon was set on November 6th.
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Given additional expectations of a surplus in corn production, it is likely that corn prices will remain soft well through harvest. The availability of cheap corn will also spark additional ethanol production levels by most plants as for now, ethanol margins are remaining positive.
The shift to lower production does not happen overnight, and it is likely to take further pressure in ethanol prices and negative production margins to get the industry as a whole to scale back production levels. This could leave ethanol prices under pressure through the winter and well into the next driving season if inventory continues to surge at the current pace. But for now, production is being based on readily available corn at lower prices.
Rick Kment can be reached at rick.kment@dtn.com
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