(Agrimoney) – Corn futures shed more than 2% at one point, falling back below $4 a bushel, after official data revealed the headwind to ethanol industry from lower oil prices, as Brent crude dropped below $50 a barrel for the first time since May 2009.
Corn futures for March touched $3.96 a bushel in Chicago before paring losses to stand at $3.99 ¼ a bushel in midday deals, down 1.4% on the day.
The decline was fuelled by poorly received ethanol data, which sent futures of the biofuel itself down 2.4% to $1.460 a gallon in Chicago, for February delivery, the weakest for a spot contract since July 2009.
“The ethanol data were definitely bearish for corn,” said Terry Reilly at Chicago broker Futures International.
‘Plants now showing red’
The Energy Information Administration said that US ethanol production fell last week by 23,000 barrels a day, albeit to a still-high level of 949,000 barrels a day.
The decline was a reflection of production margins which are “falling away”, particularly in the short-term timeframe where strong profitability has been particularly supportive to output, Terry Linn, broker at Linn Group, told Agrimoney.com.
“There are some plants that are now showing red,” in terms of operating at a loss, he said, although firm values of corn ethanol byproducts, such as feed-ingredient distillers’ grains (DDGs), are giving some support to margins.
“Thank for the distillers’ grains market,” he said, with prices of the high-protein feed being helped by talk of a return of Chinese buyers, after Beijing cleared a genetically modified corn variety which had been at the centre of a series of rejections of US cargos of the grain, and of DDGs.
Morgan Stanley at the start of the week pegged biofuel plants’ DDG revenues at the equivalent of $0.62 per gallon of ethanol, up from $0.40 a month before – and a rise which had kept overall margins in the black.
Overall ethanol production margins were, at $0.21 per gallon, down 58% on a month before.
‘Incentive is not what it was’
Morgan Stanley also highlighted a collapse in margins for blending ethanol into gasoline to some $0.40 a gallon into the red, given the outperformance of prices of the biofuel.
RBOB gasoline futures for February have fallen by more than one-quarter over the past month, compared with a drop of 12% for February ethanol futures at today’s intraday low.
Mr Linn said: “With prices of gasoline down, gasoline usage is going to increase. But the incentive for blending ethanol is not what it was.”
One market favoured by the dynamics is that of so-called “renewable identification numbers”, or RINs, which offer blenders a paper alternative for meeting their obligations for blending physical ethanol into gasoline.
“RINs have become a lot more valuable,” Mr Reilly said, with Nymex ethanol RINs for 2014 up 51% to 89.03 cents over the past month.
