The ethanol market this week will focus on:
- corn prices as bad weather continues to delay harvesting,
- gasoline prices, which saw weakness last week on concern about fuel demand, and
- ethanol blender demand, which may suffer a bit after last week's sharp 16-cent rally in ethanol prices.
December CBOT Ethanol futures prices last week rallied sharply to close +16.2 cents (+8.7%) at $2.014 per gallon. Dec ethanol futures last Friday posted a new 13½-month high and extended the recovery to 58 cents (+41%) from the contract low of $1.43 posted in July 2009. Last week's rally was driven mainly by the +6.4% rally in corn prices. Ethanol prices were undercut by the small 0.4% sell-off in gasoline prices.
USDA cuts corn crop size but crop will still be second largest ever - The USDA last Tuesday reduced its estimate for the US corn crop by 0.7% to 12.921 billion bushels, which was a bit larger cut than the market consensus for a 0.2% cut to 12.995 billion bushels. Despite the downward revision, the U.S. corn crop will still be the second largest ever, just behind the 13.038 billion bushel crop in 2007/08. The USDA cut the U.S. carry-over to 1.625 billion bushels, but that was close to the level seen in the past two years and suggests that the corn supply situation will be more than adequate for ethanol producers and that ethanol production should remain profitable in coming months.
EPA decision on 15% blend wall approaches - The ethanol market is waiting to see if the EPA will release its decision on raising the blend wall to 15% from 10% by the Dec 1 deadline, or whether it will postpone its decision to allow further study on the effects of higher ethanol blends on legacy engines. The ethanol market at most is hoping for a short-term boost to 12% or 13%, with a possible further boost to 15% after more study.
Ethanol/Gasoline - Dec gasoline futures prices last week closed 0.81 cents lower (-0.4%) at $1.9162 per gallon, just above the recent 1-month low of $1.9026. Bearish factors included (1) the rise in weekly inventories by 0.5% w/w for crude oil and by 1.2% w/w for gasoline, and (2) last Friday's weaker-than-expected US consumer confidence report, which showed a decline of 4.6 points to 66.0 and suggested ongoing weakness in consumer spending and fuel demand. Last week's sharp rally in ethanol prices caused the spread of December ethanol prices minus gasoline prices to rise by 17.0 cents to 9.8 cents per gallon, although ethanol is still 35.2 cents cheaper than gasoline after the 45-cent excise tax credit for ethanol.
Ethanol/Corn - Dec corn futures prices last week rallied fairly sharply and closed up 23.50 cents (+6.4%) at $3.9050 per bushel. Dec corn closed 22.5 cents below the 5-month high of $4.13 posted in late October. Bullish factors last week included the USDA report and poor weather moving into corn growing areas that will further hamper harvesting. As of November 8, only 37% of the corn crop had been harvested, far behind the 5-year average of 82%. Weather forecasts showed snow and rain moving through the corn belt starting this past weekend. The Dec ethanol-corn crush margin last week moved higher by 7.8 cents to 61.9 cents per gallon, which was just below the recent 1-3/4 year high of 65.6 cents.
Ethanol Calendar
- Nov 16: Weekly USDA Crop Progress
- Nov 18: Weekly DOE Gasoline Inventories
- Nov 30: EIA Monthly Ethanol Report
- Dec 1: EPA deadline for E15 waiver decision
- Dec 10: USDA WASDE Crop Supply-Demand
- Dec 22: OPEC meeting in Luanda, Angola
