US ethanol producers bewildered analysts by cutting their output
of the biofuel even as demand - and margins - rose, forcing blenders to turn to
inventories to satisfy their appetites.
Production of ethanol, for which US plants use corn as the main
feedstock, fell last week by 1.0% to 797,000 barrels a day, the US Energy
Information Administration said.
The decline, for a second successive week, came despite improving
margins which taken plants from a small loss, of perhaps 5 cents a gallon at
the end of last month, to a profit of about 10 cents a gallon now, on estimates
from Linn Group, the Chicago-based broker.
"And that profit is with all fixed costs thrown in," Linn
Group analyst Jerrod Kitt said.
While Chicago corn futures have revived in the last week,
they have gained less than 1% so far this month, on a May contract basis,
compared with rise of nearly 6% in ethanol futures, implying signally better
conditions for producers of the biofuel.
Ethanol prices have been supported by strong demand, up 2%
on the week, from blenders who mix the biofuel into gasoline.
"That is remarkably strong, given the fact that refiners are
running at only about 80% of crude oil capacity," in what is typically a weaker
period for US consumption, compared with the summer driving season.
Blenders have instead been forced to turn to ethanol
inventories, which tumbled by more than 660,000 barrels, or 3.4%, to 18.7m barrels,
during a period during which stocks would typically be building ahead of the
period of higher demand.
Inventories reached their highest on records going back to
2010 in the second week of March last year.
Mr Kitt said that he was "mystified" by the drop in
production, which followed reports of a series of ethanol plants reopening,
after mothballing capacity last summer as corn prices set record highs.
"I am at a loss," he told Agrimoney.com.
"Ethanol plants do have spring breaks for maintenance. These
are usually in April, but it may be they have taken them early."
The demand for ethanol reflects in part the soaring price of
so-called Rins (renewable identification numbers) – paper credits blenders can
use as alternatives for physical biofuel to meet mandated blending rates, and
which are generated with every gallon produced.
The price of Rins has soared from historic rates of some
$0.05 a gallon to a record high above $1.00 a gallon on Monday, on demand
attributed to a shortfall in blending rates of physical ethanol behind mandated
levels, forcing blenders to turn to the paper credits.
Rins, whose price tumbled in the last session, were on Wednesday
trading at some 85-90 cents a gallon, up some 16 cents on the day, Mr Kitt said.
He attributed the slump in prices in the last session to the
end of short-covering pressure behind the jump in prices to Monday's record
"It does not necessarily mean the rally is over," he said.
Some forecasters see Rins only become more valuable,
forecasting the shortfall in physical blending levels continuing to increase.
Rival broker US Commodities said that Tuesday's slump was
down to rumours that US energy authorities were considering reducing the mandated
levels for blending.