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There are two givens each spring: taxes by April 15 and higher gasoline prices.
- Jerry Gidel |
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Today's Featured Article
U.S. ethanol output continued to increase at an impressive 36% on last week's latest government report, with record daily and monthly production levels reported for January. According to the Department of Energy, daily U.S. ethanol output rose to 510,000 barrels per day (BPD) (up 21,000 from December), while U.S. output pushed to 637 million gallons (up 27.6 million from the previous month's record output).
Strong crude oil prices (which pushed to more than $100 per barrel) and ethanol's ongoing discount to gasoline kept U.S. ethanol plant capacity utilization firm. Based upon an adjusted Renewable Fuel Association's (RFA) operating plant list for the beginning of January, capacity utilization was 103.6%, up 0.1% from December's strong level.
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After three months of decline, ethanol stocks rose slightly to 10.674 million barrels, up just 165,000 from December. Given January's 657,000 barrel increase in output, this increase in stocks doesn't appear burdensome with the 296 million gallons of new capacity that came online during that month.
During March, four new bio-refineries came online (totaling 317 million gallons of capacity), plus there was a 48 million gallon expansion at a Poet plant in South Dakota.
Two of these new refineries were in Ohio and South Dakota for the newly combined firm of VeraSun Energy, which merged with U.S. BioEnergy this week. That brings this firm's stated operating capacity to 1.09 billion gallons, with 550 million new plants still under construction. | |
Overall, U.S. bio-refinery capacity is now 8.5 billion gallons when making some minor adjustments to the RFA's plant list on its website. After a one-month hiatus, two refineries (Pennsylvania and Iowa) broke ground this month, keeping 5.1 billion gallons listed as under construction on the RFA website.
In the current environment of rising corn prices, the U.S. ethanol industry was encouraged by reports that North Carolina and Florida have begun changes in their state regulations to allow ethanol in their gasoline -- beginning on May 1. This will help these consumers reduce pump prices through the blending of lower-cost ethanol during this summer's driving season, but the Southeast's lack of blending facilities at many of its distributors will limit the amount of ethanol shipments this area will be able to utilize this year.
Given the shaky economy, we are cautious about gasoline prices remaining firm into the final six weeks of the annual spring gasoline rally -- ahead of Memorial Day. To achieve the U.S. Department of Agriculture's 3.2 billion bu. corn demand projection for 2007/08, new bio-refinery startups need to be at a dramatic 500 million - 750 million gallons per month. This appears to be a tall order, suggesting that this year's ethanol demand for corn could be overstated by 100-150 bushels if poor margins continue to keep pressure on operating plants and possibly delay new startups. Strong exports and domestic demand can still tighten old-crop corn supplies, but producers should utilize
strength into the $6.20 area, basis December, to have 45%-50% of new-crop price risk covered -- if the current weather trend breaks and this spring's plantings aren't delayed very much vs. the last three years of early seedings in the Midwest.
The risk of loss in trading commodity futures and options can be substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results. | |
About the Author
Jerry Gidel is the president of Midland Research, Inc. and a research trading analyst for RJO Futures. In April 2003, he joined North America Risk Management Services, Inc. (NARMS) as an associate, specializing in the cash and futures grain markets.
With more than 30 years of experience in commodity analysis and brokerage, Jerry focuses on providing risk management services to livestock producers, grain producers, and commercial operations. He formed Midland Research in 1981 as a consulting firm working from the agricultural trading floor at the Chicago Board of Trade.
He has vast experience as a vice president and senior grain analyst at Dean Witter Reynolds, and as a grain market research analyst with several other leading commodity brokerage firms, including Paine Webber, G.H. Miller, LIT.
He earned an undergraduate degree in Ag business and a graduate degree in Ag economics from Iowa Statue University. He utilizes both fundamental and technical analysis in his market evaluation and brokerage services. | |
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