The Energy Information Agency of the U.S. Department of Energy released its latest June monthly ethanol output update late last week, reporting U.S. ethanol output was 527 million gallons-off just 1 million from the previous month, because of one less operating day. The daily rate of production was up 12,000 barrels to 418,000, a new record for June. U.S. ethanol plant capacity utilization decreased by 1.7% to 103.5% during June, as 275 million gallons of new capacity were added to the Renewable Fuel Association's (RFA) operating plant list. U.S. ethanol stocks also rose 117,000 barrels to 9.067 million in June vs. the 1.12 million barrel decline in 2006 (when U.S. Methyl tertiary-butyl ether blending was being phased out). Given this year's 30% stronger output, U.S stocks remain less than 22 days off the current operating pace.

Four new bio-refineries came online during August, totaling 283 million gallons of new capacity. This brought the industry's overall plant capacity to 6.77 billion gallons. Also, 10 plants (totaling 850 million gallons) began construction during August, while two 100-million-gallon facilities were shelved because of gyrating interest rates. Some previous slowdowns in plant constructions keeps us cautious about this crop year's overall ethanol corn demand, which could be 40 million to 50 million bu. less than the current 2.15 billion bu. USDA forecast. Given the potential to double U.S. ethanol plant capacity over the next 12-15 months, concerns about a possible "blending wall" have continued to surface. This is because of possible operational and logistical concerns that could curtail the expansion of ethanol 10% blending into new areas of the country, such as the southeast and southwest. However, the current discount of ethanol to gasoline prices and the likelihood of a higher renewable fuel standard levels in the 2007 U.S. Energy Bill (which should be completed this fall) are supportive factors for corn's number two demand source. Producers should hold sales for a post harvest rally (which will be tied to soybeans) to curtail too many acres of corn reverting soybeans next spring.