Ethanol stockpiles soar

Source: Dan Piller • Des Moines Register  • Posted: Thursday, February 9, 2012

Ethanol loaded into rail tank cars at Flint Hills Resources plant at Menlo

The weekly report by the U.S. Department of Energy shows a 17 percent buildup in ethanol stocks since Dec. 31.

Stocks of surplus ethanol available for blending rose from 17,945 barrels per day on Dec. 30 to 21,063 barrels per day for the week ending Feb. 3.

The impact of the large supply, combined with a drop in demand for gasoline, has depressed ethanol prices from $2.50 per gallon through early December of 2011 to $2.19 per gallon Wednesday on the Chicago Board of Trade.

The lower prices has pushed much of the ethanol industry into the red in the first weeks of 2012 after margins that had reached as high as 42 cents per gallon in October of 2011.

Ethanol producers normally like to see their product sell at a discount to regular gasoline of 20-30 cents per gallon, enough to provide incentive to blenders to use more of the biofuel.

But through this week the spread has widened as the wholesale price of unleaded gasoline has reached $2.94 per gallon on the New York Mercantile Exchange, 75 cents per gallon above the current futures price for ethanol.

“There’s a very large supply of ethanol out there right now,” said analyst Rick Kment of DTN in Omaha.

Some of the supply was caused by a runup in ethanol production toward the end of 2011 with the expectation of the end of the 45-cent per gallon blenders credit that went to oil companies and transporters who blended ethanol with unleaded gasoline.

But Rick Brehm, president of Lincolnway Energy in Nevada, said “the real problem is that demand for gasoline is down. We’re captive to the oil companies’ demand. If they sell less gasoline, we sell less ethanol.”

The U.S. Department of Energy said Wednesday that in 2011 demand for motor gasoline fell by 2.8 percent. Ethanol production meanwhile reached a peak of almost 13 billion gallons.