The ethanol market this week will focus on:

• any market-moving news for corn from Tuesday's USDA report,
• gasoline prices and commodity prices in general, which have been hammered recently by the strong dollar and weak global stocks,
• blender demand for ethanol, which should remain strong with ethanol trading at a 58.7 cent discount to gasoline including the ethanol excise tax credit.

March CBOT Ethanol futures prices last Friday edged to a new 4-month low and closed the week 2.8 cents lower at $1.749 per gallon.  Bearish factors last week included (1) the 1.4% sell-off in both gasoline and corn prices, and (2) the continued decline in commodity prices caused by continued strength in the dollar and weakness in global stocks.

EPA's RFS2 decision is a victory for the U.S. ethanol industry - The U.S. ethanol industry breathed a big sigh of relief after the Environment Protection Agency last Wednesday released its second Renewable Fuel Standard (RFS2).  The EPA gave the ok to corn-based ethanol as a fuel that meets the requirement that renewable fuels save at least 20% of greenhouse gas (GHG) emissions versus the 2005 gasoline baseline.  Specifically, the EPA said that corn-based ethanol saves 21% of GHG emissions, thus sliding in just below the 20% requirement. The EPA in its earlier proposed rule said corn-based ethanol did not meet the 20% GHG reduction.  Although most existing corn-based ethanol plants would have been grandfathered in under the proposed RFS2 rule, the proposed rule would have meant that no new corn-based ethanol plants could meet the renewable fuel requirements, which would have been the beginning of the end for corn-based ethanol in the United States.

The EPA reached its final decision by penalizing corn-based ethanol less for international land use change (ILUC), which is the assumption that planting more acres with corn for ethanol in the U.S. causes deforestation overseas.  U.S. ethanol industry groups complained that the EPA used ILUC at all in its final RFS2 rule since corn-based ethanol without ILUC assumptions actually saves 52% of GHG emissions versus gasoline.  Nevertheless, since the EPA said that corn-based ethanol meets the 20% GHG reduction, the debate about ILUC effectively became moot.

Ethanol/Gasoline - March gasoline futures prices fell sharply late last week to post a new 4-month low and close 2.70 cents lower (­‑1.4%) at $1.8864 per gallons.  Gasoline prices, along with commodity prices in general, were hit hard last week by the continued rally in the dollar.  The spread of February ethanol prices minus gasoline prices was little changed last week at -13.7 cents, which was moderately above the recent 5-month low of -$28.5 cents. 

Ethanol/Corn - March corn futures prices last week extended the 4-week sell-off to post a new 4-month low and close the week down 5.0 cents (-1.4%) at $3.5150 per bushel.  Corn prices last week continued to suffer from the very bearish January 12 USDA report (corn production +1.8%) and from the general sell-off in commodity prices.  The March ethanol-corn crush margin last week fell slightly by 1.0 cent to 49.4 cents per gallon, where it was well below the recent 2-year high of 73.6 cents.

Ethanol Calendar

• Feb 9: USDA WASDE Crop Supply-Demand
• Feb 10:  Weekly DOE Gasoline Inventories
• Feb 25: EIA Monthly Ethanol Report
• Mar 17: OPEC's quarterly meeting

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