USDA announces $1.5 billion in biofuel support but the key will be the roll-over of expiring tax measures -- USDA Secretary Tom Vilsack last Thursday announced $1.5 billion in aid for biofuel production.
The measures include (1) support for the production of new bioenergy crops such as switchgrass, algae and others, (2) loan guarantees for five biorefinery or bioenergy projects, and (3) matching funds to retailers to install 10,000 ethanol blender pumps and storage systems within five years. Mr. Vilsack also called on Congress to extend the 45-cent VEETC ethanol excise tax credit, which expires at the end of the year, although he noted that the amount of the credit may be reduced. He also called for a extension of the 54-cent ethanol import tariff but noted that an eventual phase-out of the tariff was likely.
While last week's $1.5 billion in ethanol support was welcome, the U.S. ethanol industry is relying primarily on Congress to extend at some amount the 45-cent blender credit and the 54-cent tariff before they expire at the end of the year. Congress could include those measures in an omnibus tax measure that will be considered during the lame duck session after the upcoming Nov 2 elections.
Ethanol Market Action -- November CBOT Ethanol futures prices last Wednesday pushed to a new 2-year high and then consolidated on Thursday and Friday, finally closing the week slightly higher by 0.8 cents (+0.4%) at $2.229 per gallon. Ethanol last week saw continued strong demand and ethanol prices were able to shake off the week's 0.5% loss in corn and 1.9% loss in gasoline prices.
The weekly EIA report showed that ethanol production in the week ended Oct 15 rose by 0.5% to a new record high of 881,000 barrels/day. However, ethanol inventories fell by another 2.0% to 16.034 million barrels, the lowest level since November 2009. Ethanol inventories have now fallen for six straight weeks and are down by a total of 19.5% from July's record high, illustrating that strong demand is causing a draw-down of inventories even in the face of record production.
Ethanol/Gasoline -- November gasoline futures prices last week fell to a new 3-week low and consolidated moderately below the recent 5-1/2 month high, finally closing the week down 4.00 cents at $2.0638 per gallon. Gasoline prices last week fell on the more stable dollar and on technical long liquidation pressure after the 30-cent rally seen in late-Aug and early-Sep. The relative weakness in gasoline prices last week caused the spread of ethanol prices minus gasoline prices to move higher by 4.8 cents to 16.5 cents per gallon, although ethanol is still 28.5 cents cheaper than gasoline including the 45-cent ethanol tax credit.
Ethanol/Corn -- December corn futures prices last week consolidated below the recent 2-year high and closed the week down 3.00 cents (-0.5%) at $5.60 per bushel. Corn prices continue to see support from the recent USDA reports indicating the tightest corn supply situation since 1996/97. However, corn prices last week ran into some technical long liquidation pressure and concern about weaker export sales with high prices. The corn crop as of Oct 17 was 68% harvested, or 29 points ahead of the 5-year average of 39%. The Dec ethanol-corn crush margin last week fell by 0.5 cents to 13.3 cents/gallon. Including DDG, the Sep corn for ethanol crush margin fell by 0.5 cents to 48.4 cents/gallon.
Ethanol Calendar
- Oct 28: EIA Weekly Petroleum Status Report
- Oct 28: EIA July Monthly Ethanol Report
- Nov 9: USDA WASDE Crop Supply-Demand
- Mid-Dec: EPA's E15 decision expected for 2001-06 model vehicles.
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