Grains –
While soyoil/biodiesel has been the largest beneficiary of news related to RFS mandates, corn/ethanol trade is starting to get my attention here lately. While it has gone largely unnoticed by many, ethanol prices are absolutely en fuego lately. The chart attached here shows US spot cash prices at key spots, and if you were to pull up a chart of futures you would see prices breaking out of their trading range in place since late 2014.
Not only is flat price rallying sharply, but the inverse in the market has gone nuts as well. We’ve spoken a few times in recent weeks about the data failing to show the market build stocks as it seasonally does in the fall and/or winter months. Obviously the market’s price structure is giving a major signal that we should not be building stocks and on top of that we have a nearby shortage of ethanol. What makes this all the more impressive is that ethanol production so far this fall has been running at record levels for this time of year.
Export demand certainly appears to be the “issue” here. Unfortunately our data on exports is not as current as imports, with EIA only updating exports well after the fact. The most recent data we have from EIA is currently only through September, but that Sept data shows the highest level of net exports since late 2011. Data from private sources, such as FO Licht, shows that exports have remained strong since that time and should continue to post new highs.
As you’d probably expect the primary destination for US ethanol exports is Canada. Brazil has increasingly been importing US ethanol as well due to higher biofuel mandates and higher sugar prices. China and other southeast Asian countries have also picked up imports as air pollution is starting to get a bit more attention in those areas. The point here is that this export demand could be here to stay. One thing to watch will be the spread between US and Brazilian prices as sugar prices have started to roll over in recent weeks.
Ethanol production margins remain very stout and the inverse is telling the market it needs more right now. With that in mind, look for production rates to remain strong in the weeks ahead. I was slightly surprised to see WASDE leave their corn-ethanol grind unchanged last week. If production rates remain similar over the coming weeks I would expect them to make a move in their January update.
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