Gasoline prices have been on the defensive in recent weeks, but that hasn’t stopped ethanol prices from holding firm. That's encouraging ethanol production and corn demand, according to analysts.
In the weekly ethanol production report released Wednesday, the EIA reported production at 961,000 barrels a day for the week ending Sept. 11, showing an increase in production over recent weeks and a production pace above the 931,000 barrels produced during the same week last year.
Meanwhile, U.S. ethanol stocks have fallen to 18,291 barrels this week, according to EIA’s stocks report, which was the lowest inventory level recorded since December 2014.
EIA’s data implies that ethanol producers used an estimated 102 million bushels of corn in the week, which is an increase over the prior week and above the 98.8 million bushels in the same week last year, noted Arlan Suderman, senior analyst at Water Street Solutions.
“Marketing year corn usage for making ethanol totals an estimate 204 million bushels through the first couple of weeks of the marketing year, up 6 million or 3% from the previous year,” Suderman reported Wednesday on the MarketSense blog.
“Estimated corn usage to date already exceeds the seasonal pace needed to reach USDA’s target by next August by 6 million bushels,” Suderman pointed out.
In USDA’s September WASDE report, ethanol usage held steady at 5.250 billion bushels, up 45 million bushels from last year.
Ethanol futures, meanwhile, are rallying despite the fall in gasoline prices, thereby encouraging ethanol production and demand for corn.
As of Wednesday, CME October ethanol futures rose to $1.525 per gallon, up from 1.448 per gallon at the end of August, while CME October gasoline futures were $1.3843 per gallon, down from the recent high of $1.5033 per gallon during the same period. WTI crude oil futures Wednesday were $47.24 per barrel, down from $49.20 per barrel at the end of August.
The strength in ethanol is helped in particular by a growing U.S. export market that’s filling the void of reduced Brazilian exports and growing ethanol demand worldwide," said Jerry Gidel, feed grain analyst at Rice Dairy, LLC.
“What’s helped the whole ethanol industry is that exports of ethanol have been very strong,” Gidel said. “Two things have happened. The Brazilians have pretty well abandoned their export market since they’ve developed over the last 10 years, and they’re trying to use up all their own sugar. The other thing is that the world has discovered that ethanol as a product is going back to its roots as being an oxygenate and being used to reduce smog around the world in places like Dubai and the United Arab Emirates. They don’t want smog. It’s more of an environmental issue. That’s key despite what’s going on in the world of crude oil prices.”
According to the latest figures from EIA, U.S. ethanol exports from January to June added up to 10.430 million barrels, compared to the 9.969 million barrels exported during the same period last year.
Strong livestock demand for DDGs is also encouraging for ethanol production, according to Gidel.
Robert Lowery, the branch manager for The Price Futures Group in Auburn, Neb., said the ethanol industry will likely remain a reliable buyer of corn in the future.
“The demand’s going to be there," Lowery said during Market Rally on Tuesday . "They’re going to continue to grind for ethanol, and that’s a big user of our corn out here.”