US ethanol bucks weaker margins to post fresh production rise

Pressured margins for the average ethanol producer were not enough to slow production across US ethanol facilities in the week ending March 2, data from the EIA showed Wednesday.

Production averaged 1.057 million barrels per day, a rise of 13,000 barrels per day, according to the data.

Alongside that, stock levels also continued to rise, adding a further 100,000 barrels to take levels to 23.1 million barrels – a potential bearish cloud, although seasonally not uncommon as the US gears up for the summer driving season.

Stock levels are higher by 288,000 barrels versus the beginning of March 2017, and down by 163,000 barrels versus the same period of 2016.

All of the increase in production came in the Midwest, where production reached 973,000 b/d - its highest level since the week ending December 22, 2017 as complicated logistics made typical export routes harder to utilise.

High water levels along some of the key Mississippi tributaries saw the CME declare force majeure at key river-based corn loading facilities, complicating movements down river to the US Gulf and possibly making ethanol a more attractive outlet.

Alongside that obstacle, snow and bad weather through the northwestern states of the US have slowed rail movements to the Pacific Northwest, cutting out another potential outlet.

However, margins have been sliding in recent weeks as corn prices have moved decisively higher.

According to Iowa State University, the average margin for an Iowa-based production facility is just under 23 cents/gallon as of March 2, with the margin falling consistently over the course of the previous four days to the lowest margin since February 13.

Current production levels equate to approximately 110 million bushels of consumption per week, based on an average of 2.8 gallons of ethanol from each bushel.

That means the US needs to average consumption of around 100 million bushels to exceed the USDA’s anticipated 5.525 billion bushels of corn going into ethanol production.