The ethanol market this week will focus on:

• gasoline prices ahead of Wednesday's OPEC meeting, which is expected to produce no change in OPEC's official production quota of 24.845 million barrels a day since OPEC is happy with oil prices near $80 per barrel,
• corn prices, which are keying on weather and field conditions for spring planting, and
• the ethanol supply situation which has become a significant problem, although demand should improve with ethanol at its cheapest level relative to gasoline in 19 months.

April CBOT Ethanol futures prices last week extended the sharp 2-month sell-off to post a new 6-month low and close 3.0 cents lower (-1.9%) at $1.585 per gallon.   Bearish factors included (1) the 3.0% sell-off in corn prices and 0.7% sell-off in gasoline prices, (2) continued supply overhang with record U.S. ethanol production of 1.026 billion gallons in the latest reporting month of December, (3) last Friday's 1.1 point decline in U.S. consumer confidence in early-April to 72.5 from 73.6, and (4) technical weakness with the new 6-month low.

Biodiesel tax credit debacle offers warning for ethanol industry -- The Senate last week approved the reinstatement of the biodiesel tax credit of $1.01 per gallon, which was attached to the bipartisan jobs bill.  However, the bill still has to be reconciled with the House and signed by the President, which could take another week or two.  Congress took no action to prevent the biodiesel tax credit from lapsing at the end of 2009, thus forcing the majority of U.S. biodiesel producers to shut down their operations.

The biodiesel debacle presents a clear warning for the ethanol industry since the ethanol industry's 45-cent excise tax credit and 54-cent import tariff will expire at the end of this year.  The ethanol industry has been forewarned that the timely roll-over of the tax measures is not 100% guaranteed, particularly with the drumbeat of negative PR on ethanol regarding food-for-fuel and environmental issues.

Ethanol/Gasoline - April gasoline futures prices last Wednesday edged to a new 1∂-year high but then faded later in the week to close slightly lower by 1.6 cents at $2.255 per gallon.  The main factor driving oil and gasoline prices higher recently has been the improved economic data and hopes for higher fuel demand.  Bearish factors pressuring the market later last week included (1) the sixth straight week of crude oil inventory gains, which hit a 7∂-month high in last week's report, and (2) long liquidation pressure after the sharp 5-week rally.  The spread of April ethanol prices minus gasoline prices fell by another 1.4 cents to -67.0 cents per gallon, which left ethanol at its cheapest relative to gasoline since August 2008.

Ethanol/Corn - May corn futures prices last week fell to a new 5-week low and closed the week 11.25 cents lower (-3.0%) at $3.6425 per bushel.  Bearish factors continue to include big South American corn crops and the USDA's forecast for a near-record corn crop this summer.  The main factor that could produce some strength in corn prices is cold and wet spring weather that could delay planting.  The May ethanol-corn crush margin last week rose by 0.5 cents to 29.3 cents per gallon, which was near a 9-month low and was far below the recent 2-year high of 73.6 cents.

Ethanol Calendar

• Mar 17:  Weekly DOE Gasoline Inventories
• Mar 17: OPEC's quarterly meeting
• Apr 8: EIA Monthly Ethanol Report
• Apr 9: USDA WASDE Crop Supply-Demand
• Late Summer: EPA's E15 decision due

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