US ethanol output hits record, lifting corn price

US ethanol production soared to a record high as plants prepared for rising seasonal demand against a background of positive margins, supported by weak corn prices and rising crude oil values.

US biofuel plants produced an average of 972,000 barrels a day of ethanol last week, up 28,000 barrels a day on the previous week, and the highest figure since records began four years ago.

Some increase had been expected, given the weak markets in corn - the main raw material for US ethanol producer - and strength in gasoline prices, up more than 6% in the past two weeks, buoyed by the latest round of Middle East unrest which has underpinned energy market overall.

However, the extent of the increase took many investors by surprise.

Ethanol futures for August tumbled 3.7% to $1.991 a gallon in Chicago. Corn futures for July, meanwhile, stood 1.0% higher at $4.43 a bushel, with the data adding to some other arguments that price falls may have been overdone for now.

'Pressure on prices'

Indeed, margins for ethanol producers have fallen to about $0.50 a gallon, from $0.73 a gallon two weeks ago, according to Allendale, the Chicago broker.

Margins peaked at $1.55 a gallon in late March, when they gained an extra fillip from poor weather which hampered transport of the biofuel, forcing buyers to pay up for available supplies.

At Iowa-based US Commodities, Don Roose said that "thanks to the China issue, we do have pressure on prices of distillers' grains", or DDGs, a byproduct of ethanol production used as a high protein, livestock feed ingredient.

China has suspended imports of US DDGs amid concerns about contamination with MIR 162, a Syngenta corn variety cleared in Washington but not in Beijing.

"But on the other side, the market for corn has been so low, supporting margins."

'Demand expectation'

Nonetheless, other factors may have been in play in supporting ethanol production at the volumes seen last week.

"It also has a bit to do with demand expectation in my view," a Europe-based grain trader told

"You have the US summer driving system coming up, when usage peaks, meaning that producers will be less concerned about building up inventories."

'Built up pretty well'

Rich Nelson, chief strategist at Allendale, underlined that rising inventories had been, and remained, a worry for investors.

"Since the end of March, stocks have built up pretty well. Data last week showed them up 15% on last year," Mr Nelson said.

In fact, inventories fell last week by 572,000 barrels to 17.85m barrels, "but this is an issue that the market will continue to watch".

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