Key Highlights

● Ethanol rose 1.43% to $1.775 a gallon in the latest reading, dated 28 October.

● US ethanol output reached 1.118 million barrels a day in the week to 23 October.

● Ethanol stocks of 24.5 million barrels were 9.6% above a year earlier.

● Green Plains reports third-quarter results on 5 November after the market closes.

Ethanol rose 1.43% to US$1.775 a gallon in the latest reading, dated 28 October, a small bounce after one of the weakest months of the year. The price is the revenue line for US producers such as Green Plains (NASDAQ:GPRE), which reports third-quarter results on 5 November.

Even with the gain, ethanol is down 7.31% on the week and 14.25% on the month. It is still 11.81% higher since the start of the year and 4.41% above a year ago. That contrast with crude oil is striking: WTI is up 12.65% on the month while ethanol has fallen, so ethanol is not simply following fuel prices. Ethanol is quoted in US dollars per gallon, not per barrel or tonne.

Ample Supply Against a Weak Month

Ethanol is in an unusual position. Gasoline and crude have climbed strongly, yet the corn-based fuel has lost ground, and the data point to a well-supplied market. A bounce from a depressed level sits against a month of steady declines.

Production and Stocks Point to Plenty

The EIA's weekly data for the week ended 23 October show US fuel ethanol production at 1.118 million barrels a day, up 25,000 from the previous week. Exports fell 12.1% to 116,000 barrels a day, and stocks were 24.5 million barrels, 9.6% above a year earlier.

Higher output, softer exports and stocks above last year's level all describe a market with enough supply. Spot ethanol had already fallen 4.76% in the second week of October, as production recovered after maintenance and refiner and blender demand softened slightly, partly offset by stronger exports and lower inventories.

The Physical Market and Corn

Cash prices in the Midwest sit higher than the quote above. The USDA weekly ethanol report for 19 to 23 October listed Illinois rail ethanol at US$2.09 to US$2.10 a gallon and Indiana at US$2.14 to US$2.17. These are cash-market ranges rather than the futures-style quote used here, and they show that physical buyers were paying more than the headline price.

Corn is the main input. December CBOT corn was at 460.50 cents a bushel on 22 October in the USDA report, and corn has since slipped to about 451 cents. Distillers grains, a livestock-feed co-product, were priced at roughly US$195 to US$210 a ton in Illinois. Lower corn supports crush margins, though margins also depend on natural gas, plant efficiency and co-product values, and ethanol and corn are quoted in different units, so they cannot be compared directly.

What It Means for Ethanol Producers and Refiners

Green Plains is a US ethanol and agricultural-technology company. It reports third-quarter results on 5 November after the market closes, with a call at 4:30 p.m. Eastern. As a producer it buys corn and sells ethanol, distillers grains and corn oil, so its margin reflects the spread between inputs and outputs, not the ethanol price alone.

REX American Resources (NYSE:REX) also produces ethanol. In its fiscal second quarter, reported on 2 September, net income attributable to shareholders was US$34.9 million, up from US$7.1 million, including US$18.4 million of production tax credit income.

Valero Energy (NYSE:VLO) is a refiner that also operates 12 ethanol plants in the central US, with capacity of about 1.7 billion gallons a year. Its ethanol segment earned an operating profit of US$272 million in the third quarter, up from US$183 million a year earlier, on record volumes of 4.8 million gallons a day. For a company like Valero ethanol is one part of a much larger business, so a lower ethanol price does not translate neatly into earnings.

Ethanol Watch: Contract Expiry, EIA Data and Green Plains' Results

The October CME Chicago ethanol contract expires on 3 November, and trading rolls to November. The next EIA weekly report on 4 November will show whether production and stocks keep rising, followed by Green Plains' results on 5 November. The next USDA weekly ethanol report and corn futures will show whether physical prices and margins move with the quote.

Prices could be supported by stronger exports, lower stocks or tighter corn-to-gasoline economics. They could soften if production stays high, if stocks keep running above last year's levels or if spot liquidity thins again.