The ethanol market can be a pretty volatile place when it comes to pricing. IBISWorld is offering a report on how to identify where volatility exists, not just in ethanol, and how to reduce risks in price instability.
Because of fluctuating key input costs, prices of diesel and ethanol have displayed a high level of price volatility. While diesel and ethanol are both used for fuel, they do not share the same production process because diesel fuel comes from crude oil and ethanol comes primarily from corn…
Meanwhile, the price of corn is estimated to fall 21.7% in 2015, which will play a large part in the 29.2% drop in ethanol prices expected this year. Similar to diesel, ethanol prices are forecast to reverse and then stabilize at mild growth in the coming years.
The fuel market is known for its booms and busts, which can foster a hectic procurement environment. As such, buyers are encouraged to engage in long-term contracts with their fuel suppliers to reduce their exposure to price fluctuations. By locking in favorable rates now while prices are low, buyers can avoid the risk of anticipated prices rises in the future.
More information is available here.
A highlight for the 2012 Export Exchange was Dr. Joe Glauber’s comments on the supply and demand of the United States and worlds coarse grains. Dr. Glauber is the Chief Economist for the United State Department of Agriculture. Attendees from across the world listened as he discussed the aftermath of the US drought and the goals for price moderation worldwide.
“No surprise I talked about the drought and the effect on corn and soybeans primarily. This was a global conference so wheat, as well. Clearly the drought was a the big story this summer. It certainly affected prices. As we look forward I think the key thing in terms of price moderation is the world is now turning to the South American soybean crop and we should have more information on that in the next couple months. The real issue will be what it means for spring planting here in the United States. I think given these prices we are going to see strong acreage again for corn and soybean. Hopefully we’ll see better yields and some rebuilding of stocks and some moderation of prices because the livestock side of the sector has been hit pretty hard.”
Listen to my interview with Dr. Glauber here: Joe Glauber Interview
Of particular interest to the ethanol industry, Dr. Glauber spent several minutes of his presentation discussing how the drought, corn prices and other factors have influenced ethanol production this year, as well as some insight on the blend wall and the Renewable Fuel Standard (RFS). Listen to that portion of his remarks here: Joe Glauber ethanol comments
Listen to Dr. Glauber’s entire presentation here: Joe Glauber at Export Exchange
You can find photos from this years Export Exchange here: 2012 Export Exchange
It was the main topic of the president’s press conference today and Congress will be holding hearings on it this week. From the president to the people at the pump, everyone is talking about higher gasoline prices these days, but ethanol is actually helping to keep them lower than they could be.
In a new RFA Issue Brief, the Renewable Fuels Association has analyzed the data to provide background information on the downward pressure exerted by domestic ethanol production on gasoline prices.
This “Ethanol Report” features an interview with Renewable Fuels Association (RFA) Vice President for Research and Analysis Geoff Cooper on just how ethanol does it. From ethanol’s lower cost at the wholesale level to how it reduces oil demand and prices and provides a cost-effective source of octane, Cooper says “there’s no argument that ethanol is playing a significant role in holding gasoline prices lower than they would be otherwise.”
Listen to or download the Ethanol Report here: Ethanol Report on Ethanol's Role in Gas Prices
Subscribe to the Ethanol Report here.
Oil prices have reached a new six-month high as Iran’s reduction of oil shipments to Europe is forcing American motorists to pay more for gasoline. In reaction, the American ethanol industry is telling consumers that higher blends of ethanol in motor fuel would reduce prices at the pump and reduce OPEC’s influence over our nation’s economy.
“American motorists are looking down the barrel of $5 a gallon gasoline this summer, all while foreign strongmen and dictators threaten to drive prices up even more by shutting down oil supplies. And yet we have the answer to this right here in front of us with American ethanol,” said Tom Buis, CEO of Growth Energy. “Ethanol is trading at about 75 cents a gallon cheaper than gasoline. We ought to be giving motorists here at home more choices at the pump. The choices are simple — stay chained to the whims of an Iranian strongman,or invest in clean, renewable, American-made energy with ethanol.”
Growth Energy petitioned the U.S. Environmental Protection Agency to permit blends of up to E15, from the current level of E10. After rigorous testing of engine drivability and emissions testing and found that every car tested – from model year 2001 and newer – met standards for E15.
While minor steps remain before E15 can be brought to market, there are some in Congress who continue to slow the advance of alternatives to gasoline. In a House Science Committee vote last week, Rep. James Sensenbrenner’s (R – WI) legislation to delay E15 even further won approval.
“That’s a last desperate step to keep consumers from having a choice at the pump and keep us addicted to the most unstable region in the world,” Buis said of the Sensenbrenner bill.
Read more facts and information on ethanol and prices.
Could E15 ethanol (a blend of 85% gasoline and 15% ethanol) be the economical answer to the nation’s higher fuel costs? The American Coalition for Ethanol (ACE) believes so.
National surveys indicate that gasoline prices are up about 45 cents a gallon compared to a year ago, while ethanol prices have dropped more than 30 cents. Current ethanol wholesale prices are about 80 cents less than gasoline, says Ron Lamberty, senior vice president for ACE, a national advocacy association for the U.S. ethanol industry.
“At today’s prices, 10% ethanol blends are already saving consumers 8 to 10 cents per gallon compared to unleaded gasoline. Nationally, that saves almost $30 million dollars a day,” Lamberty says. “E15 could offer even greater savings. Drivers with vehicles new enough to use E15 could be saving 12 to 15 cents a gallon by choosing the E15 blend, potentially cutting gasoline costs by an additional $10 million dollars each day.”
E15 would benefit consumers and federal officials should immediately complete any work needed to allow marketers to offer the fuel for sale at stations across the country, Lamberty adds.
After years of testing by EPA and the Department of Energy, E15 was approved more than a year ago, as an option for cars and light trucks built in 2001 and later.
“Ethanol opponents continue to create new roadblocks, claiming to be “pro-consumer” and “pro free market,” while they do everything they can to keep E15 – a tested, approved, safe fuel – off of the market. That causes consumers to over-pay for gas and it is the opposite of a free market.” says Lamberty. “E15 is approved as an option. Retailers don’t have to add it to their product slate and consumers don’t have to buy it. Yet there is considerable effort to continue misleading and frightening consumers into supporting this idea of an auto fuel Nanny Slate that only benefits the oil industry and those who depend on Big Oil’s support,” according to Lamberty.
“ACE is urging federal officials and Congress to get behind efforts to open up E15 for public sale to all vehicles that are 2001 and newer as soon as possible. It’s time that we allow American consumers the option to support a cleaner fuel that helps cut down on imports of foreign oil and supports American jobs. We think that the majority of Americans would be in favor of something this beneficial for consumers rather than supporting efforts that only go to increase profits for oil companies,” Lamberty said.
One of the benefits of membership in the GROWMARK cooperative system is daily information about the energy markets and recommendations on contracting fuel at different times of the year.
Harry Cooney is manager of customer risk management for GROWMARK Energy and he is constantly keeping an eye on the energy complex, especially gasoline, propane and diesel fuel. He says the primary influences on the energy market lately have been the situation in Europe, the value of the dollar and the stock market.
“In the past six months to a year, there’s been a strong connection between the stock markets and the energy markets,” Cooney said. “When things look bad in Europe, then our stock market tends to fall off and when the stock market falls off the energy markets tend to fall off.” He says world events in the currency and stock markets and whether the economy is strengthening or weakening have more impact on energy markets than public policy decisions, like the blenders tax credit for ethanol and the Renewable Fuels Standard.
In the diesel market, Cooney says we are seeing strong demand and falling stocks. “Diesel stocks have fallen under the five year average for the first time in many months,” he said. “The economy is starting to come around so stocks are coming down and diesel demand is back well over the five year average after just bottoming in July.”
As propane users look ahead to contracting for 2012, Cooney says they are currently making recommendations for summer through winter of next year. “Given the somewhat tight stocks situation and the fact that crude oil tends to want to go up, it makes us want to be a buyer of propane,” he said.
Listen to my interview with Harry Cooney here: Harry Cooney Interview
CHS Energy is bullish on ethanol.
That’s according to CHS Energy Director of Sales Mark Fenner, who was giving interviews at the recent National Association of Farm Broadcasting meeting in Kansas City. “We don’t know about the tax incentives, but even without it, I think we’re going to see strong use for ethanol because it is less expensive than traditional gasoline, so when you blend it – whether at E15 or E10 – it does lower the price,” said Fenner.
CHS Energy is part of a national diversified company owned by farmers, ranchers and cooperatives that operates petroleum refineries/pipelines and manufactures, markets and distributes Cenex brand refined fuels, lubricants, propane and renewable energy products. Fenner says the move to a 15 percent ethanol blend for some vehicles is very positive for agriculture, but it does present challenges for retailers. “Our stance was could we look at an E12 where every vehicle could use that and retailers wouldn’t have to split the islands based on newer or older cars,” he said.
CHS also distributes biodiesel and Fenner says that market is less positive for them at the moment. “The flat price of biodiesel compared to traditional diesel has been a big hindrance. We just haven’t seen the demand in that product that we had hoped to see,” he said. “We’re an agricultural-owned company so we wanted to see that product take hold, but it’s just difficult.” He says they still sell a good bit of biodiesel, but it continues to be a struggle.
Listen to a short interview with Mark Fenner here: CHS Interview
The Renewable Fuels Association (RFA) has a good post on the E-xchange Blog this week about the relationship between ethanol and gasoline prices and the importance of the Volumetric Ethanol Excise Tax Credit, or VEETC.
RFA Vice President for Research Geoff Cooper notes that ethanol prices have strengthened recently and while gas prices have also increased slightly, gasoline prices would be higher were it not for ethanol in the mix. “Despite the fact that the market price for ethanol has been above the price of gasoline in recent weeks, the ethanol blender’s tax credit has kept the effective price of ethanol below the price of gasoline,” Cooper says.
As of last week, Chicago spot prices showed ethanol selling for $0.15 less than the blend-ready gasoline (called Reformulated Blendstock for Oxygenated Blending, or RBOB), when VEETC is accounted for. This differential translates to a gallon of E10 being 1.5 cents/gallon cheaper at the retail level than unleaded gasoline without ethanol.
This simple example demonstrates the importance and effectiveness of the VEETC. In essence, VEETC is enhancing the ability of ethanol producers to manage sharply higher corn prices, while at the same time ensuring ethanol is priced competitively with gasoline and ultimately saving consumers money.
Read Cooper’s analysis here.
I’d like to take a poll to see how many people thought that gas prices would never get higher than last summer where some areas around the country nearly topped out at $5.00 a gallon and for several weeks consumers in the South couldn’t even get gas.
Can you say deja vu? According to the Nebraska Ethanol Board, nationally gas prices have risen almost every day for the last 42 days. Several analysts expect that a return to $100 oil and $4.00 gas isn’t too far behind. Extremists predict that we could see $200 barrel of oil before the end of the year.
By now, you’d think that people would realize that ethanol helps consumers save money at the pump. Last summer, an Iowa State University study demonstrated that ethanol helped consumers save on average $500 per year.
Todd Sneller, administrator of the Nebraska Ethanol Board, notes that Nebraska drivers have already saved over $4.5 million in 2009 by buying E10. “If all the fuel sold in Nebraska in the past five years was E85, Nebraskans would have saved $2.6 billion.”
Since energy is tied so closely to our economy many economists are speculating that this steady rise in oil prices could prolong America’s recession. At the beginning of the month, OPEC’s Abdullah al-Badri told attendees at the Global Energy Summit that the price of crude oil needed to be much higher. OPEC intends to do this through modifying production quotas and shutting down oil refineries “until the surplus is depleted”. Demand for oil and gas has dropped 2.6 million barrels per day worldwide.
As people begin to trim their budgets to offset the higher fuel prices, you’d think they would send Big Oil a message that, “we’re not going to take it”.
Nebraska Ethanol Board chair Mike Thede sums it up, “We can invest in alternative, renewable, inexpensive fuels like ethanol, or we can continue the billion-dollar giveaway to Big Oil.”
Recently, the Ethanol Across America education program released a White Paper titled: Ethanol Economics from Ranch to Restaurant, authored by Chairman of the Nebraska Ethanol Board (NEB) Jim Jenkins. Jenkins is also cattleman and a restaurant owner. This White Paper presents a unique perspective on the impact of increased grain prices on his two businesses and how it may drive industry to more efficiency and greater profitability.
“A number of factors have led to the recent historic increase in commodity prices, but market forces are kicking in—creating stability, and profit opportunities for livestock producers, biofuels producers and the rural communities in which they live and do business,” noted Jenkins in the paper. “The advent of the biofuel industry is helping lead America out of decades of stagnant commodity prices—while, for the first time, providing consumers with a viable fuel choice for their vehicles.”
Ethanol Across America is a non-profit, non-partisan education campaign of the Clean Fuels Foundation and is sponsored by industry, government, and private interests. U.S. Senators Ben Nelson (D-NE) and Richard Lugar (R-IN), Co-Chairmen.