I remember when Platts' Houston editor Robert Sharp and I journeyed into Illinois in the summer of 2001. We knew ethanol was going to be big, and Robert had been chosen as the Platts' editor to cover what we knew was going to be a vibrant spot market for it. At least, we were pretty sure it was going to be vibrant.
We visited the offices of Archer Daniel Midland in Decatur, Ill. They were very polite. They were very civil. They were very nice. They also wanted nothing to do with us. This is when ADM's control of the market was in excess of 65%, and the idea of a spot market was anathema. We also got the very strong sense that they were determined to make sure that a spot market never developed.
After we visited ADM, we traveled to what was then the ethanol division of The Williams Cos., in Pekin, Ill. The attitude we encountered there was far more open toward the development of the spot market. And so it was with a smile that we yesterday read on Platts the comments by Aventine chairman Ron Miller saying that most of his company's supply contracts signed this year had been based on spot prices. For planned delivery of about 200 million gallons, 127 million gallons is going to be on a spot index. (We hope it's Platts). Some are at a fixed-price basis of $1.96, which may be a real albatross later, and some are at a 43 cent premium to wholesale prices. So our predictions were right. And to complete the picture, remember that Aventine used to be the ethanol division of Williams...and Ron Miller was at our meeting in the summer of 2001.
It's sort of old news by now, but it needs to be said again: all of these products are basically providers of BTUs. And there is no way that one supply source of BTU can be priced on a marginal basis, while another won't be. No, you can't easily switch from ethanol to uranium, for example, but in the end, there will be a relationship. The only question is how tight it is.
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