US energy watchdogs are "absolutely not" mulling an easing in ethanol targets to reduce the pressure on corn supplies, despite significant damage to the crop from heat, a senior official said.

Persistent market speculation in grain markets that the Environmental Protection Agency is poised to waive obligations for ethanol use in the US is "just rumour", a spokesperson for the watchdog told Agrimoney.com.

The comment came amid a fresh round of market talk of an easing in restrictions after EPA data showed US daily ethanol production falling last week by 19,000 barrels a day to 802,000 barrels a day – the lowest since records began in 2010.

However, it followed testimony to US lawmakers by Margo Oge, director of the EPA's office of transportation and air quality, in which she said the watchdog was "absolutely not" considering waiving obligations for the use of ethanol.

Chicago corn futures for December, the best-traded contract, recovered from early losses to post 1.6% gain in late deals, reaching $7.84 a bushel, after news of the testimony was revealed.

The testimony can be viewed at http://www.ustream.tv/recorded/24061680, with the comments on the ethanol mandate starting at about 17 minutes.

'No petitions'

Ms Oge, in response to questioning over rumours of a waiver, told admitted to a House Energy and Commerce Subcommittee that the EPA had been "in discussion with colleagues from US Department of Agriculture".

"There are more acres, so more corn produced this year than produced last year," she said.

The EPA did have a process under which regulated companies, and state governors, can petition the agency to waive obligations on renewable fuels on grounds of "lack of availability… and significant cost impacts to the region or the state".

However, "we have not seen any petitions", Ms Oge said, adding that the receipt of any requests would kick-off a process including a 90-day consultation period.

Heat factor

The reduction in US ethanol production last week took above 10% the drop in output since mid-June, when a drought now officially stamped as the most extensive since 1956 began sending grain prices soaring.

The price of US corn, of which some 40% is used in making ethanol, has soared by one-half, putting pressure on biofuel plant margins, and encouraging shutdowns which have so far seen about 12 factories mothballed, and left the industry running some 15% below usual capacity.

However, the latest ethanol production data, while "pretty dire", may not be all down to pressure on margins, Jerrod Kitt at broker Linn Group said, noting also the impact of the heatwave in the Midwest, where many plants are based, so as to be near to the source of their main raw material.

"Ethanol plants do not like excessive heat," Mr Kitt told Agrimoney.com.

"It reduces efficiency of what is a biological process," based on fungal breakdown of corn.

"It can also effect electricity generation."

Margin improvement

A cooling in Midwest temperatures was likely to see a slowdown in the rate of decline in ethanol production.

Furthermore, a recovery in ethanol prices, up 30% in the last month for the best-traded August contract, had revived production margins to, on paper, show a small profit.

Including the positive basis, making cash purchases more expensive than futures, producers were likely running at a headline loss of some 5-10 cents a gallon, although this was still an improvement of levels of 30 cents a gallon hit last month.