Senate's anti-ethanol vote won't become law but highlights that ethanol support measures are likely to be trimmed -- The Senate last Thursday voted 73-27 to eliminate the ethanol tax incentive program.  The White House will not go along with that measure and it will not become law.  Nevertheless, the vote made clear that support is eroding for ethanol subsidies in an era of cutting spending and the budget deficit.  The ethanol industry remains braced for the loss of last least part of the 45-cent per gallon VEETC subsidy for ethanol blenders and the 54-cent tariff on imported ethanol when they expire at the end of this year.  On the brighter side, the Senate voted down by 59-41 Senator McCain's attempt to prevent federal funds from being used for blender pumps, illustrating that at least 59 Senators are looking for ways to continue supporting ethanol such as expanding availability through more blender pumps.

Separately, U.S. officials last week were able to prevent G-20 agriculture officials from adopting a formal policy against biofuels.  The U.S. was the target of an effort to try to get the U.S. to stop using subsidies and tariffs to protect the corn-based ethanol industry.  G-20 ag ministers instead agreed on a plan to curb food prices by expanding global inventory grain information.

Weekly EIA report shows inventories down 6.2% from record high -- Ethanol production in the latest reporting week of June 17 rose by 2.4% to 901,000 barrels/day.  Production remains high at only 2.3% below the adjusted record high of 922,000 bpd posted in January.  However, demand also remains strong  since ethanol inventories in the week ended June 17 fell by 1.2% to 19.509 million barrels and are now down by 6.2% from the record high of 20.797 million barrels posted in the May 20 week.  Inventory levels are at reasonable levels given demand and seasonal factors.

Ethanol Market Action -- July ethanol futures prices last week closed slightly lower by 0.8 cents (-0.3%) at $2.633 per gallon.  Ethanol prices last week managed to shake off most of the bearish impact from last week's sharp decline of 4.3% in corn prices and 5.8% in gasoline prices. Supportive factors centered on continued strong demand and the fact that inventories are down by 6.2% from record highs. 

Ethanol/Gasoline --  July gasoline futures have fallen sharply in the past two weeks and closed last week down 16.94 cents (-5.8%) at $2.7766.  Bearish factors include (1) Saudi Arabia's recent statement that it would raise production along with its Persian Gulf partners, and (2) last week's surprise news that IEA members would release 60 million barrels of emergency oil stockpiles over 30 days.  July ethanol prices closed last week at a 14.4 cent per gallon discount to gasoline prices, which equates to a 59-cent ethanol discount including the 45-cent ethanol tax credit.

Ethanol/Corn -- July corn futures prices have fallen sharply in the past two weeks and last week closed 30.25 cents lower (-4.3%) at $6.70 per bushel.  Bearish factors include favorable weather conditions and the latest Crop Progress report saying that 70% of the U.S. corn crop is in good or excellent condition, which should result in a higher yield and crop size.  The July ethanol-corn crush margin last week rose 10.0 cents to a 7-month high of 24.0 cents/gallon.  Including DDG, the July corn for ethanol crush margin rose 10.0 cents to 59.8 cents/gallon.

Ethanol Calendar
June 29: EIA Weekly Petroleum Status Report
June 29: EIA Monthly Ethanol Report
July 7: EIA Weekly Petroleum Status Report
July 11: Next CME Ethanol Outlook Report
July 12:  USDA WASDE Crop Supply-Demand

To subscribe to this free report, please go to http://www.cmegroup.com/newsletter/web2lead/web2sf-old.html

Read the full PDF report by clicking on the following link: