Posted November 27, 2012 by Jake Emen in Automotive

US Ethanol Crisis continues further


Despite the below average output for the bio fuel ethanol, the ethanol futures gained against gasoline in Chicago.

According to Statistics of Energy Department the production of ethanol has fallen down for the week ending on Nov 16 by 13,000 barrels a day to 811,000 barrels which is below the 2 year average of 904,000 barrels as on the same day. The market’s starting to worry about the future supply of the bio fuel. Companies are struggling to make profits from distilling the fuel as the corn prices have gained by 15% this year.

On September 28 the difference between the BioFuel Energy Corp. (NASDAQ: BIOF) and the motor fuel was 99.8 cents. Based on the December futures on Nov. 22, the discount of the grain based addition to the motor fuel narrowed from 36.85 cents to 35.19 cents a gallon.

On the Chicago board of trade December delivery of denatured ethanol rose 1.1 cents to settle at $2,392 a gallon, which is by 0.5%. This year the prices have gained a cool 8.6%.

In comparison Gasoline slipped by 0.56 cents to close at $2.7439 a gallon in New York Mercantile Exchange, which is from 0.2%. According to the contract the reformulated gasoline has to be blended with ethanol before delivering to filling stations. In Chicago a bushel of corn for March delivery advanced 0.6 percent to close at $7.4975. The distillery can make at least 2.75 gallons of ethanol with one bushel of corn.

Losses in output

According to Bloomberg the producers of ethanol are losing 32 cents per gallon of fuel made based on the December contracts for corn and ethanol. This is up from 31 cents as of November 21. However any revenue from the byproduct of ethanol production that is the dried distiller’s grain which is generally fed to the livestock is over on top of the above figure.

Ethanol companies from Valero Energy Corporation (NYSE:VLO) to BioFuel Energy Corp.(NASDAQ:BIOF) has closed distilleries, giving reasons as thin margins to make the fuel thus making the number of closed companies in 10.

Since 1996 the Energy department tracks the output which shows that this is the first yearly decline. According to the data by Energy department there will be a 1.2% fall in production amounting to 850,000 barrels a day by 2013. On an annualized basis this will amount to 13 billion gallons. But according to a U.S law, the refineries need to use 13.2 billion gallons of ethanol this year and 13.8 billion in 2013 which leave the producers with barely any incentive.

Jake Emen

Jake Emen is a writer residing in Houston, Texas. He has written numerous articles, some for the Washington Post, USA Today, the LA Times, and the Houston Chronicle. One of AC s Top 100 Content Producers, Carly Hart s interests include news, politics, parenting, frugal living and consumer related issues. He acted as a customer advocate and has extensive experience working on Wall Street. As a highly acclaimed industry leader, he has been a catalyst for public education and accessability of financial services.