Ethanol Blog

Ethanol Stability Unlikely in Short Term

Rick Kment
By  Rick Kment , DTN Analyst

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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GWL 61
9/21/2014 | 3:28 AM CDT
If the plants increased production how are they going to ship it ? With the pathetic rail service that is upon us. Some elevators still full of wheat, that they can't ship. This website is more for speculators then producers.
Lane Robinson
9/19/2014 | 1:30 PM CDT
I thought this was a website for production agriculture? We have one hell of a corn crop to chew up, so why should you or I care what the price of ethanol is as long as the margin is there. The greater the spread between ethanol and gasoline, the greater the incentive to use the product in this country or as export. I don't see the reason for your concern from the ag production side. We won't address the blend wall issue and/or market access, but I think the old adage of "the cure for low prices is low prices" is applicable here.