EPA E15 Decision May Benefit Ethanol


"EPA's expected approval would have bullish impact on ethanol prices."

The market consensus is that the EPA will approve, within the next two weeks, E15 for vehicle model years of 2007 and newer, which would be a significant bullish long-term factor for ethanol prices. The DOE is not expected to finish testing model years 2001-06 until the end of November.

Ethanol Market Action —November CBOT Ethanol futures prices last week fell sharply to post a new three-week low and close $0.15 lower (-7.8%) at $1.842 per gallon. Bearish factors centered on heavy long liquidation pressure and the 10.7% plunge in corn prices. The sharp 7.5% rally in gasoline prices last week provided some underlying support and allowed ethanol prices to fall by less than corn prices (-7.8% ethanol prices vs. -10.7% corn prices).

Weekly ethanol production and inventories decline—Ethanol prices received some underlying support last week from the weekly EIA report, which showed ethanol production fell 2.9% to 825,000 bpd in the week ended Sep 24, 2010—the third consecutive weekly decline. Ethanol production is now 5.7% below the record high of 875,000 bpd posted on September 3rd. In addition, ethanol inventories fell by another 2% to 17.164 million barrels—the lowest since December 2009, down 13.8% from the record high posted July 2nd.

Last week's EIA ethanol report released last week showed ethanol production hit a record high of 857,000 bpd in July, but that was old news considering the EIA is now releasing weekly data. The industry in July operated at the very high level of 97.2% capacity. Since July, it has boosted capacity 1.8% to 13.765 billion gallons/year, according to the Renewable Fuels Association.

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