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Lack of imports and record exports fail to boost ethanol

By Robert Sharp

July 8 - Ethanol prices have not increased and production margins are not terribly attractive this year despite a dearth of imports, unprecedented levels of exports, and a government-mandated increase in demand, Platts data indicates.

Platts assesses spot ethanol trade in Chicago, where the price fall since January 1 has been precipitant. On January 4, Chicago was assessed by Platts at $1.965/gal, but by April 1 it hit $1.525/gal, and by July 1, $1.5450/gal; that is a 42-cent/gal drop on the year. (See related chart: Platts Ethanol Chicago Spot (USC/GAL), January - July 2010).

The 12-month high for spot ethanol in Chicago was $2.2350/gal, assessed on November 18, 2009.

Corn is the principal feedstock for ethanol in the US. On January 1, front month corn futures as listed on the Chicago Board of Trade (CBOT) settled at $4.184/bushel; by April 1, the price was $3.44/bushel and on July 1, $3.65/bushel.

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Spot gasoline in Chicago was higher through the spring, but fell later. On January 4, Platts assessed spot CBOB (the gasoline that is designed to be blended with ethanol at 10%) at $2.0539/gal; by April 1 it was up to $2.2547/gal, but by July 1 it had fallen to $1.9446/gal. (See related chart: Platts CBOB Chicago Pipe (USC/GAL), January - July 2010).

On a percentage basis, from January 4 to July 1, ethanol fell 22%, corn by 13% and gasoline by 5.4%.

Imports decrease

The absolute and relative fall of ethanol occurred, however, in an environment of a radical decrease (to the point of extinction) of imports, an indirect result of high international sugar prices.

Sugar, not corn, is the feedstock for ethanol production in Brazil.

Poor harvests of sugar in India in 2008 and 2009 and other factors caused those prices to shoot higher in the second half of 2009, more than doubling. The Intercontinental Exchange sugar futures contract no.11 hit almost 30 cents/pound in February 2010.

This meant Brazil, which had been the default ethanol exporter to the world, to curtail exports in favor of sugar.

According to Platts data spot ethanol in Brazil hit $2.85/gal on February 18, 2010; in New York (one market that competes directly with Brazil for exports) on that day, Platts assessed the spot market at $1.80/gal. Brazil has since fallen to $1.85/gal, or lower, but is well above any price in the US.

In April, total imports, according to figures released by the US Energy Information Administration (EIA), were a mere 36,000 barrels; as recently as July 2009 the figure was 1.1 million barrels; in August of 2006, it was 3.1 million barrels.

Prices in Brazil have simply been too high, not even counting the 54 cent/gal import duty imposed by the US.

Exports increase

That was good news for US ethanol producers, who started exporting in earnest in the third quarter of 2009, and continue to this day.

In fact, according to statistics compiled by the US Department of Agriculture, the US by March had exported 124.3 million gallon, more than the entire volume of exports in 2009. That export figure does not make a distinction between fuel, beverage and industrial grades of ethanol, but market sources made it clear that the increase is a result of fuel ethanol, not other grades.

Exports destinations that have shown radical increases included the United Arab Emirates, India, Brazil, the European Union and Jamaica; this is all attributable to fuel ethanol, market sources confirmed.

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