“Maddening” US ethanol prices mimic RINs volatility

Source: By Jordan Godwin, Platts News Service • Posted: Wednesday, April 9, 2014

US ethanol prices in 2014 have become what RINs were in 2013 — volatile and downright wacky.

In the opening three months of 2013, biofuels RINs went from the nerdy kid in freshman biology to a menacing and eccentric upper-classman that scared all the other kids in the cafeteria. The previously lesser-known renewable credits generated by physical gallons of biofuels became a household name of infamy as finger-pointing linked them to rising prices at the pump.

And if there’s one thing an array of industries, commodities, and political dealings have learned over the years, you don’t mess with prices at the pump.

In a matter of less than two months, ethanol prices went from six-month lows to eight-year highs. The rail industry took the bulk of the blame as delayed return times on railcars during the winter forced plants to reduce run rates or shut down entirely, as on-site storage filled up faster than trains could ship it out.

The reduced production put significant strain on already severely depleted ethanol stocks that are still suffering the lingering effects of the 2012 drought, alongside slowly rising gasoline blending demand.

That strain on supplies and production has now created a beast of a trend for the industry. Similar to the way oil commodities generally respond in some way to the US Energy Information Administration’s weekly status report, ethanol prices have traditionally reacted to the data with price changes ranging from a 0.5-2% on a weekly basis.

But in this climate, those weekly figures play a much, much bigger role in price movement. Over the past three weeks, the Chicago Argo ethanol assessment has been rocked by 13%, 4% and 10% price changes on Wednesdays following the weekly data.

“It’s maddening,” one ethanol trader at a refiner said. “The ethanol world revolves around the stats right now.”

Most of my sources have had a devil of a time coming to terms with the rollercoaster ride the industry has been on for nearly two months. One particularly great quote from a source can be heard in the most recent The Yield podcast.

In what felt like a weeklong April Fool’s joke, the Chicago Argo ethanol assessment started out its highest level since the summer of 2006 at $3.76/gal. Then, it plunged nearly a dollar over the next three days — “revolving” around the EIA’s uptick in production — only to change directions again on Friday, soaring 20 cents.

Platts assessment of Chicago Argo ethanol, Jan. 1-April 7, 2014

Platts assessment of Chicago Argo ethanol, Jan. 1-April 7, 2014

What will play out in April? Sources say while production is stronger than it was in March, it’s not going to be enough to get stocks to the levels they need to be heading into the summer driving season. And then what happens? More explosive volatility, I’d guess.

If you enjoyed the RINs ride in 2013, hop aboard the wild ethanol train of 2014 and stay tuned. Anyone want to guess where we’re headed?