The Department of Energy's April monthly ethanol output report last week showed another record daily average output pace of 391,000 barrels-up from 384,000 during March and 35% higher than last year's 289,000 average rate. Total output slipped 7.5 million gallons to 492 million gallons vs. 499.5 million in March, because of one less operating day. U.S. ethanol stocks rose during April by 262,000 barrels, which suggests a slight decline in demand.  But this year's stock build was substantially less than the 379,000 barrel rise of 2006, and this year's stocks are 296,000 less than last year's 9.1 million barrels.

   The big surprise to us was June's U.S. ethanol plant capacity utilization rate. Instead of seasonal maintenance downtime that has occurred in April of the last two years, the U.S. ethanol industry kept pumping out product. This month's capacity utilization pace actually rose 0.1% to 104.3% when using the Renewable Fuel Association (RFA) operating plant list, which added 105,000 barrels of new capacity that month.

   During May, two plants and two expansions began operations that brought 145 million gallons of new capacity to the industry, which now totals 6.33 billion gallons. However, a group of 6-8 plants totaling about 470 million gallons have been slow to come online over the last four months, which keeps ius cautious that this crop year's corn demand could still be 30-40 million bushels less than the USDA's current 2.15 billion for 2006/07.

   Ethanol's longer-term demand outlook got two significant boosts over the past few weeks. First, California's announcement that all gasoline sold in the state would have to be blended with 10% ethanol by December 31, 2009 could nearly double the state's current annual usage of 1 billion gallons, because it is presently only blending 5.7% into gasoline. Second, the U.S. Senate's passage of a 2007 Energy Bill that expands U.S. alternative fuels use to 36 billion by 2022 (15 billion gallon limit for corn-produced ethanol) would up next year's mandatory demand for U.S. energy firms to utilize 8.5 billion gallons of ethanol vs. the current 7.5 billion amount by 2012.  The Senate did leave out legislation to extend the import tariff & blender's credit, but these actions likely will appear in conference committee bill next fall since the U.S. House won't likely complete its version of the bill until after the August recess.