Ethanol production is no longer a machine for printing money like it was during the glory days of the biofuel boom. But managers of Midwest plants showed they still know how to make a buck the old-fashioned way last week. They purchased cheap corn and sold ethanol and byproducts at firm prices to take advantage of some of the best profit margins of the year.
Ethanol production soared as a result. The government reported plants churned out 1.059 million barrels a day last week, nearly tying the record reached in January. Nonetheless, the move wasn’t a “good news, good news” story.
Stocks surged as well. Refineries produced less gasoline than expected, reducing need for blending fuels. Ethanol prices dropped 2%, outpacing losses in the rest of the energy complex.
Moreover, even with the increased output last week, ethanol production for the 2016 crop marketing year that ends Aug. 31 may not reach USDA’s forecast. Much depends on just how efficient plants were over the summer, data that won’t be available for a month and a half.
Corn futures paid little heed to the ethanol report, breaking below Sept. 30 lows.
Growers can at least take a little solace in the prospect for slightly lower fuel prices if they fill up this week. Diesel prices at wholesale Midwest benchmarks eased, continuing a mild pullback from the top of their recent trading range.
The government reported Midwest diesel stocks were down this week, despite increased production. Prices sold off anyway, following a downturn in crude, which has been unable to sustain a move above $50.
Crude prices fell even though U.S. inventories were down sharply last week, falling by almost 9 million barrels. Traders instead focused on rising U.S. production, which threatens to overwhelm cuts by OPEC and its allies after the peak summer demand period is over.
Basis for diesel against ULSD futures, which are delivered in New York Harbor, was mixed. Cash normally strengthens against the board ahead of harvest as farmers load up on fuel, which could keep diesel costs fairly firm even if the oil market continues to pull back.
Propane prices at wholesale benchmarks followed in the Midwest were steady to firm today, despite the retreat in crude. Propane eased a little this week, but remains close to its highest price since February. Prices normally firm ahead of the winter heating season to encourage supply building. Inventories are indeed on the rise, but remain near five-year lows for this time of year.
Senior Editor Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Adviser. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.