Ethanol sees supply and demand volatility

Ethanol stocks have reached an all-time weekly high according to the Energy Information Association, which coupled with rising corn costs and decreasing fuel demand, could cause come Midwest biorefineries to cut back on production.

Ethanol futures on the Chicago Board of Trade have fallen by a margin of nearly $0.50 (€0.38) over the past five months to $2.21 (1.67) a gallon, whilst its primary feedstock, corn, is priced around $6.36 (4.82) a bushel.

Another contributing factor could be the recent termination of the $0.45-per-gallon blender tax credit as it was an incentive for oil companies to buy ethanol and blend it with petrol, suggested Matt Hartwig, spokesman for the Renewable Fuels Association.

Rick Kment, a Nebraska-based ethanol industry analyst for agricultural data company DTN, suggests that the lagging demand is seasonal – merely a by-product of the reduced driving in winter months. He says that larger ethanol plants are more likely to decrease production rather than shut down.

The 28-million-gallon-per-year Midwest Renewable Energy ethanol plant located near Sutherland, Nebraska, has had to halt production for up to 12 weeks.

’We went from some of the best margins we've ever seen to some of the worst in 30 to 45 days,’ says Troy Gavin, general manager of Midwest Renewable Energy. ‘That is volatility like no other industry.’

However, closures are still occurring. Archer Daniels Midland Co. announced it was shutting down its ethanol plant in Walhalla, North Dakota, citing location and scale as reasons for low profit margins.

In 2008, market volatility led to the bankruptcy of VerSun, the second biggest ethanol producer in the US at the time.