The cut in ethanol production did not last long with production rebounding from its recent low of 816,000 bpd to 876,000 bpd, a 6.5% increase in one week. Total ethanol stocks stayed essentially flat. PADD II, which covers the Midwest producing area, showed a small increase of 50,000 barrels. The PADD I, which covers the USEC, showed a drop from 8,445,000 to 8,271,000 barrels. The drop on the USEC is supportive of the strong price differential for NYH material over Chicago that has been a feature of the ethanol market during the last 10 days.
No significant change in gasoline production using ethanol. Gasoline blended with ethanol fell slightly from 7,911,000 bpd to 7,983,000 bpd yielding a 84% ethanol blending penetration rate.
The large increase in ethanol production is a bearish sign for the ethanol market. ADM annouced that their expansion at Cedar Rapids, Iowa is coming on line this month, which if it produces at nameplate will add 20,000 bpd to production.
On the bullish side, the export arbitrage to Europe is still open albeit a little tougher to capture. The European market continues to move up on price for T1 product to draw more material to a net short European market. Latest T1 deal was $585/cbm FOB Rotterdam for Aguust delivery. EN spec grade material in the US is somewhere in the 25-30 cpg premium to CBOT delivered to a coastal terminal,
Prompt CBOT corn/ethanol crush margins had moved from 22 to 32 cpg over the last two weeks. The December crush margin falls to 22 cpg. This margin differential will continue to support a backwardated shaped market.
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