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Veteran Contributor

How long has Ethanol been HIGHER than Gasoline?

Since the EPA expanded the blend to 15% I been kinda watching the ethanol - Gasoline futures...

 

Concluded  this morning there must be a shortage of Ethanol... as the price of ethanol on the nearby is higher than the nearby price of Gasoline..  Ethanol is trading for 2.2009  and Gasoline is trading at 2.1365.... it used to be Ethanol was used to cheapen the price of gas at the pump... has the consumer demanded the 'greener' ethanol now which is driving up the price of ethanol or is there a shortage created because of the EPA expanding the blend..

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11 Replies

Re: How long has Ethanol been HIGHER than Gasoline?

Its because corn is higher.  If ethanol does not track corn up, there will not be enough ethanol production to meet demand.  Plants will slow down because they cannot cover their variable costs of production if ethanol does not go up with corn.  Plain and simple economics.  

 

This has nothing to do with the e-15 announcement.  There is no e-15 being sold today to a wide scale audience.   

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Senior Contributor

Re: How long has Ethanol been HIGHER than Gasoline?

         Blenders should be interested in blending to the end of the year as the blenders credit is still 45 cents . Next year it could be lower. Nothing like leaving everything in a lame duck congress's  lap. High price corn will slow production to get the most out of every bushel.

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Veteran Contributor

Re: How long has Ethanol been HIGHER than Gasoline?

You bring up an interesting point about economics, but wouldn't economics say that there isn't enough supply of corn that demand has to come down.  If ethanol just keeps going up when corn does isn't it just the dog chasing it's tail.  My question would be do we base demand off of the fuel market or off of mandate or a little bit of both.  If ethanol is running above unleaded I would be inclined to say demand is being based off of the mandate, but I know little to nothing about the fuel market so I could be way off.  If the mandate dictates demand no matter what the price of corn, doesn't that kind of give the ethanol plant a put option on losses?  If the mandates keep things in line why were there so many bankruptcies in the ethanol industry?  My guess if they wouldn't have done anything but bought corn and sold ethanol every day most of them would still be in business?  How are most plants managing their risk today, I would think they would be either locking in margins if they were tight on money or doing nothing if they are not with plans of turning down the dial when things get a little tough or turning up the dial when things are good. 

 

I can say I am a supporter of ethanol without it we would have a huge surplus of corn and probably higher fuel cost, but I have always wonder what will happen if we ever have that short crop year.  My fear is that if we keep these mandates too aggressive we will lose them the second we have a real supply shock.  I can also see it from the livestock guys view, there is no mandate for meat why should they have to be the one that cuts back shouldn't the market decide not the mandate although if you are a feedlot next to an ethanol plant you are probably reaping the benefits of distillers at a discount to the corn market. 

 

I know little to nothing about the fuel market or about ethanol plants so if I am way off on any of my assumptions I apologize in advance and if there is anyone that knows more then me please correct me.

Veteran Contributor

Re: How long has Ethanol been HIGHER than Gasoline?

the question was how long has the futures price of ethanol been higher than the futures price of gasoline?  when did that crossover occur?

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Frequent Contributor

Re: How long has Ethanol been HIGHER than Gasoline?

 

It looks like ethanol price gapped higher upon the USDA recent bullish corn report? Here's the Dec ethanol chart;

 

 

http://charts.insidestocks.com/chart.asp?sym=ZKZ0&data=A&jav=adv&vol=Y&divd=Y&evnt=adv&grid=Y&code=B...=

 

 

You can compare it to the Dec unleaded chart;

 

http://charts.insidestocks.com/chart.asp?sym=RBZ0&data=A&jav=adv&vol=Y&divd=Y&evnt=adv&grid=Y&code=B...=

 

Let's hope the consuming public remains unaware of this inversion....

 

 

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Veteran Contributor

Re: How long has Ethanol been HIGHER than Gasoline?

As it has been pointed out on this site often, you have to figure the cost of the military in the price of gasoline.  I think those servicemen are tired of burying some of America's finest to protect oil.

http://news.yahoo.com/s/yblog_askamerica/20101016/pl_yblog_askamerica/u-s-military-ask-america-voter...

 

Frequent Contributor

Re: How long has Ethanol been HIGHER than Gasoline?

In a Lassaiz-Faire world, with zero oil subsidy, and a military thatb only defended against direct attacks on American soil without any foreign adventures, what would global flow rate of oil be?

My guess is that we could subtract 3 mbpd off the top, but I have to respect those that suggest it might actually be 2 mbpd higher.

In this Lassaiz-Faire world where the govt didn't intervene in economics, what would the ethanol supply look like? (Assuming the 3 mbpd less oil model)

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Senior Contributor

Re: How long has Ethanol been HIGHER than Gasoline?

obg, good to see you here! since there are almost no lasis faire govts left, what is the point you are trying to make? respectfully, d7

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Frequent Contributor

Re: How long has Ethanol been HIGHER than Gasoline?

Hello Dapper. The subject of American military costs getting added to oil's liability column is often brought up, and rightly so. That subject is a "What If" scenario. Since we are on the subject, let's simply follow it through for a change.

What happens to the price at the pump when all the carrier groups stop protecting shipping lanes? To make it simple, let's assume a 3MBPD production drop. The price rations back demand 3MBPD, effectively halting consumption by people who add the least value to it. Because we now have left only the efficient consumers that add the most GDP/barrel to the fuel, they can afford to pay a lot more, and pay they will.

So now we need to look at the size of the corn crop to determine ethanol's place in that free market world. My guess is that it would be a small crop. Really small. (At least by todays standards) Brutal petrol prices would create austerity in people's diet, while folks would stop throwing scarce energy into marginal soils.

An example of that occured in 2006 just before the ethanol boom. We were selling record amounts of grass seed. The game of high transportation costs with rotten grain prices created a short-lived boom for grass fed beef. Pivot after pivot was getting sowed to grazing seed. In the absence of ethanol, that boom's legs would really stretch out. We'd be looking at 8 billion bushel crops maybe in the above scenario.

The end result would be a miniscule ethanol industry, but the same expensive corn.

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