Ethanol production plunges on weak demand

Source: Dan Piller, Des Moines Register • Posted: Friday, June 1, 2012

Demand for regular gas has fallen, too, causing prices to drop.

Ethanol production dropped by 17,000 barrels per day during the week ended May 25, although stockpiles of 21.5 million barrels remain 6.3 percent higher than a year ago, the U.S. Department of Energy reported this week.

A reflection of soft demand for ethanol is the price, which on Thursday dipped to $2.02 per gallon on the Chicago Board of Trade futures market. Since the 45-cent-per-gallon blenders credit expired at the end of 2011, wholesale ethanol has fallen from $2.75 per gallon in late 2011 to $2.36 per gallon in April and $2.24 at the beginning of May.

Falling ethanol prices have caused ethanol operating margins to average a negative 10 cents per gallon in the first quarter of 2012, after averaging a profit of 40 cents per gallon in the last quarter of 2011 before the tax credit ended.

The Department of Energy reports show that U.S. oil stockpiles are at their highest levels since the early 1990s, courtesy of a 12 percent increase in crude oil production over last year.

Crude oil futures dropped below $87 Thursday on the New York Mercantile Exchange, down from $110 in March. Wholesale unleaded gasoline futures have declined from $3.25 per gallon at the beginning of 2012 to $2.74 on Thursday.

Gasoline blended with ethanol sells for $3.29 per gallon in Des Moines, compared with $3.44 a month ago and $3.58 last year through the Memorial Day weekend.

Shrinking demand for gasoline is a major factor in the decline of oil prices. The Energy Department has predicted the lowest consumption of gasoline since 2001, down as much as 6 percent from the record national consumption set in 2007.

The Energy Department said in its latest supply and demand report: “This outlook reflects high gasoline prices, slowing growth in the driving-age population, and the improving average fuel economy of new vehicles.”

Iowa is the nation’s leading ethanol-producing state, with 41 plants producing about 3.7 billion gallons of fuel. The United States this year will produce and consume about 13 billion gallons of ethanol.