The ethanol market this week will focus on:

• corn prices as the weather looks good for accelerating the very late harvest and as the market awaits Tuesday's USDA report,
• gasoline prices, which posted a 3-week low last week on pessimism about demand, and
• ethanol blender demand, which should remain strong with the favorable economics of ethanol versus gasoline.

December CBOT Ethanol futures prices last week traded sideways, mildly below the recent 13-month high, and finally closed the week slightly higher by 0.6 cents (+0.3%) at $1.852 per gallon.  Bullish factors centered on the slightly higher close of +0.3% in corn prices and slightly lower close of -0.6% in the dollar index.  Bearish factors included the 1.8% decline in gasoline prices and last Friday's 0.4 point jump in the U.S. October unemployment rate to a new 26-year high of 10.2%, which suggested weak consumer spending and fuel demand.

USDA report expected to cut corn production slightly - The market consensus is that the USDA on Tuesday will cut its 2009/10 corn production estimate by 0.2% to 12.995 billion bushels from the October estimate of 13.018 billion bushels, according to a survey by Dow Jones.  The lower production figure is expected to stem from a lower yield of 163.7 bushels per acre, down from 164.2 bushels in the October report.  The lower yield is expected to be due to frost and the wet weather late in the season, which caused quality problems.  Yield estimates have a higher degree of uncertainty than usual due to the late harvest and bad weather.  The consensus is that the U.S. carry-over will fall slightly to 1.650 billion bushels from the October estimate of 1.672 billion bushels.  The USDA is likely to leave unchanged its corn use estimate from ethanol producers of 4.2 billion bushels.

Ethanol/Gasoline - Dec gasoline futures prices fell to a new 3-week low last Friday due to the weak October unemployment report, finally closing the week down 3.52 cents (­‑1.8%) at $1.9243 per gallon.   Gasoline prices were supported earlier in the week by the news that weekly gasoline inventories fell slightly by 287,000 barrels (-0.1%) and that fuel demand in the latest week rose by 1.8% w/w, breaking the string of three consecutive weekly declines in demand.  Ethanol prices last week were stronger than gasoline prices, causing the spread of December ethanol prices minus gasoline prices to rise by 4.1 cents to -7.2 cents per gallon.

Ethanol/Corn - Dec corn futures prices sold off late last week, giving up an early-week rally and closing just 1 cent higher at $3.67 per bushel.  Dec corn closed just slightly above the recent 1-month low of $3.64 per bushel.  The sell-off later in the week came because of warm and dry weather that moved into the corn belt, allowing corn to dry out and for the harvest to accelerate.  The corn market also saw harvest selling pressure as farmers brought cash grain to market and as hedgers sold futures.  Last Monday's weekly USDA Crop Progress report showed that only 25% of the corn crop was harvested as of November 1, far behind the year-earlier level of 53% and the 5-year average of 71%.  The Dec ethanol-corn crush margin last week edged higher by 0.2 cents to 54.1 cents per gallon, which was just below the recent 1-3/4 year high of 56.1 cents.

Ethanol Calendar

• Nov 9:  Weekly USDA Crop Progress
• Nov 10: USDA WASDE Crop Supply-Demand
• Nov 11: Weekly DOE Gasoline Inventories
• Nov 30: EIA Monthly Ethanol Report

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