U.S. ethanol production hits record high to boost corn prices

Developments

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u.S. ethanol production hits record high to boost corn prices

2014-06-20 09:24 |
source: China Grain Network |


u.S. ethanol production rose sharply to an all-time high as plants stepped up production in preparation for seasonal increases in demand. Weak corn prices and strong international crude oil prices have made ethanol production lucrative.

According to the latest report released by the US Energy Information Administration (EIA), in the week ending June 13, the average daily output of ethanol in the United States was 972000 barrels, an increase of 28000 barrels from a week ago. That's the highest level since records began four years ago.

Ethanol production growth was also expected, given the weak corn market and stronger gasoline prices. Corn is the main raw material for ethanol production. Gasoline prices have risen more than 6% in the past two weeks because of instability in the Middle East.

But the increase in ethanol production has surprised many investors. On Wednesday, ethanol for August delivery fell about 3.7 percent to $1.991 a gallon. CBOT July corn futures rose about 1% to $4.43/bushel.

Allendale says profits from ethanol production have fallen to about $0.50 a gallon from $0.73 a gallon two weeks ago. Profits from ethanol production peaked at about $1.55 a gallon at the end of March, when adverse weather restricted biofuel shipments, prompting buyers to raise prices and procure limited supplies.

Dan Ross, an analyst at U.S. Commodities Corp. in Iowa, said China's restrictions on the import of U.S. corn dross have put pressure on the price of domestic corn dross due to concerns that the shipment is mixed with MIR 162 genetically modified corn that has not been approved by the Department of Agriculture. But on the other hand, the decline in corn prices is also conducive to the improvement of ethanol production profits.

Rich Nelson, chief strategist at Allendale, said the increase in ethanol inventories remained a concern. Stocks have risen sharply since the end of March. Last week's data showed inventories were up 15 percent from a year earlier. Although ethanol stocks have been 572000 barrels lower in the past week than a week ago, this still requires close attention from the market. (Source: Boyi Master)