Following the markets
The news last Thursday was how U.S. ethanol output rose 1.8 percent the previous week, supplies dropped 2.5 percent. That was the highest ethanol output since mid-February and the lowest on the stocks side since mid-May. Marketers and risk management professionals watch these numbers closely, of course. I loved Ray Defenbaugh’s comment in the FEW panel where he spoke. He described Big River’s risk management strategy as being like a hawk sitting on a power pole, watching for an opportunity to swoop down and catch a morsel. The morsel, of course, for ethanol producers is an opportunity to lock in profits.
I would guess the market is actually quite extraordinary right now on several fronts, or so it seems to an amateur watcher.
A near-record tight projected corn carry-out should have the markets sky high, and we did see some peaks. But with the new crop expected to hit new supply records, corn prices are actually the lowest they’ve been for a long time. I don’t follow the basis, though, so I’m not sure how this is playing out in cash purchase for ethanol plants. The classic line is the cure for high prices is high prices and we’re seeing that now. The recent high corn prices have stimulated production and that potential increase is bringing the price down.
The ethanol side of the equation is seeing record supplies as well. Weekly stocks-on-hand have been the highest ever. The lousy margins at the beginning of the year prompted a slow down in ethanol production, which put a bit of a damper on the climb in ethanol supplies. But the surplus – and looming blendwall – have helped drive ethanol prices down to some of the lowest levels in a long time.
But there are so many other factors I don’t have a handle on – the price of oil greatly impacts ethanol prices and that’s down and the value of the dollar is shifting, thanks to the EU debt crisis. And then there’s export demand, global demand factors, other crop demand factors.
What amazes me, though, is just how relative it all is. As a farm woman, I can follow corn prices. I know what a low price is and what a high price is. I know some of the basic market influences, and can follow the market a bit like a sports nut follows the season scores. I’m just beginning to be able to do so with ethanol. I get a daily market report on ethanol prices that I’m beginning to be able to follow. Thursday, the report’s ethanol/corn crush margin was the highest it’s been for months at 27 cents. The crush margin is highly volatile, and I expect that it is one of those morsels that chicken hawk on the power pole is watching intently.
I hope to learn more about that sometime soon.
The editorial team at Ethanol Producer Magazine has been restructured, though it is the same three of us. My colleague Kris Bevill has been named news editor, and will be more closely coordinating our news coverage. Holly Jessen is now features editor, and will be facilitating the longer, in-depth stories that we publish in the monthly magazine, and which appear on the website as well. And, I am now contributions editor, which means I coordinate the industry-professional-written pieces that appear in the magazine (and online) as well the columnists who write for the magazine. With the reshuffling of responsibilities, I will be doing more writing. (And continuing this blog.) One of the topics I want to explore in greater depth is this whole evolution of the markets, and what it means for ethanol producers and corn farmers.