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Corn+Soybean Digest

Ethanol Futures

In the wild energy market, there appears to be no sector with more uncertainty than the ethanol market. As each new ethanol plant comes online, the market gets closer to the day that gasoline substitution becomes the only viable growth demand stream. Gasoline with alcohol supplied to the market has finally started to consistently exceed the 4,500 barrels/day mark. Unfortunately for ethanol producers, it has achieved this growth through severe price discounting relative to gasoline.

Blenders appear willing to deal with ethanol as a fuel extender if they can make a good profit. This is hardly a surprising development. It will be a bitter situation for ethanol producers to see pricing power end up on the other side of the table. Given the uncertainties of corn prices, ethanol producers have limited ability to lock in strong profits at the moment, but it appears that profits could be pressured further either by higher corn prices or lower crude oil prices.

This reduced profit picture has definitely started to cool some of the expansion prospects for ethanol production in the short and intermediate term. The RFA’s website still shows 6.4 billion gallons of expansions and new capacity planned, but it doesn’t specify when that growth will be online. Given the substantially reduced profit potential, it remains to be seen how long all the announced expansions and new plants stay on the books.

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