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US ethanol prices swaying with changing supply picture

Ethanol prices fell 10 cents/gal on August 6, 2008, in Chicago, pushed lower by dramatically weaker corn prices, market sources said.

August trade in Chicago at the benchmark terminal Argo rated $2.14-2.15/gal. The Platts assessment on August 5 was $2.24-2.25/gal.

US production of ethanol hit an all-time high in May of 592,000 b/d, which was double that of May 2007.

Traders said that the spot ethanol price fell along with front month corn on the Chicago Board of Trade futures market, which settled lower by 17.2 cents/bushel, $5.08/bushel. (Listen to a related podcast about the volatile ethanol market.)

US spot prices for ethanol have been on a wild ride since early May, initially driven up by higher corn prices as well as flood-related delivery delays, and then pushed back by an apparent near-term over-supply. (See a table of ethanol prices at key rack locations.)

On May 1, Platts had assessed New York Harbor spot levels at $2.5525-2.5575/gal. Following Midwestern rains and flooding that cast a pall over corn crops, the price hit $3.00 on June 21 and $3.21/gal on July.

Corn shot higher in June after rains and flooding were feared to have affected corn production. The front month corn contract on the CBOT hit its high on June 27, $7.62/bu.

Spot ethanol assessments in Chicago hit its high on July 2, $2.92-2.93/gal; along with corn it has pretty much consistently fallen since then.

A June 30 US Department of Agriculture report found that Midwest flooding had only reduced the harvest outlook by two percentage points as farmers told the agency they expected to harvest 90.4% of their planted acres.

US production of ethanol hit an all-time high in May of 592,000 b/d, which was double that of May 2007, according to the US Energy Information Administration data released August 4.

The May figure was surprising to some market sources, in that production was affected by severe May rains and June flooding. Despite tight ethanol distillation margins due to strong corn prices, however, new plants still continue to come on line.

May ethanol stocks rose by 507,000 barrels to 12 million barrels in May, according to the EIA data. The US imported 28,000 b/d during that month.

Also, the US exported in May the equivalent of 6,000 b/d, according to consultant Andy Lipow. He estimated Tuesday that the total US demand for ethanol was 604,000 b/d, which would have accounted for 6.5% of the total US gasoline pool in May.

The current federal Renewable Fuel Standard mandate calls for the use of 9 billion gallons within the transportation fuels mix this year. At the May production level of 598,000 b/d, the US was producing 9.167 billion gallons, more than enough ethanol to meet the RFS without imports.

For July, Lipow calculated the US production rate at about 10.5 billion gallons per year, what would seem to be a bearish scenario.

Next page: Texas waiver bid may hang on corn report

Created: August 7, 2008

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