Ethanol Industry Roiled by Flooding, Lifting SoCal Gasoline Prices Near $4/gal

April 09, 2019

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(Seeking Alpha) The floods that inundated the Midwest also have slammed a U.S. ethanol industry that already was struggling with high inventories and sluggish domestic demand growth.

Ethanol shortages from the Midwest are one factor pushing gasoline prices in Southern California to the highest in the U.S., possibly topping $4/gal for the first time since 2014, says tracking firm GasBuddy.

The floods knocked out ~13% of U.S. ethanol production capacity, mostly from shut rail lines that serve as the main arteries for corn and ethanol deliveries; ethanol prices on the coasts spiked due to shortages, but Midwest producers have been unable to take advantage because of the washed-out rail lines, Reuters reports.

At Chicago’s Argo terminal, the main U.S. ethanol pricing hub, the cash price for ethanol fell for an eighth straight session last Friday to $1.29/gal, the longest downward skid since April 2018. READ MORE

UPDATE 1-MIDWEST FLOODS HAMMER U.S. ETHANOL INDUSTRY, PUSH SOME GASOLINE PRICES TOWARD 5-YEAR HIGH (Reuters/Successful Farming)

MIDWEST FLOODS HAMMER U.S. ETHANOL INDUSTRY (Reuters/KRVN)

Crude Oil Price Surge, Seasonal Patterns Driving Gasoline Price Increases, Not Ethanol (Renewable Fuels Association)

Senator Ben Sasse surveys flood damage in Wood River (KSNB; includes VIDEO)

Gasoline likely going sky high on West Coast, but rest of US may not even see $3 this summer (CNBC)

High Gas Prices Made Worse By Midwest Floods (Forbes)

Thank ethanol for pain at the pump (Citizen Tribune)

Houston gasoline prices steadily rising before summer (Houston Chronicle)

Why Gas Prices Are Spiking (New York Times)

Are Ethanol Prices Driving Gas Prices Higher? (AgWeb)

Summer 2019 gasoline prices forecast to be lower than last summer (US Department of Energy Energy Information Administration)

Levine: Highway robbery (San Diego Union Tribune)

Excerpt from Renewable Fuels Association: There has been considerable discussion lately regarding the reasons for rising gasoline prices in the late winter and early spring of 2019, including the potential role of ethanol following the Midwest floods in March. However, according to an analysis released today by the Renewable Fuels Association, the recent increase in gasoline prices is driven by:

A surge in crude oil prices since the start of the year;
Typical seasonal patterns in gasoline pricing, partially reflecting the changeover to summer specifications; and
Refinery maintenance and unplanned outages.

Ethanol prices are at a steep discount to gasoline prices (and to other sources of octane), and inventories have recently been at record levels. While transportation challenges caused issues with delivery to isolated locations in the immediate aftermath of the floods, production was not significantly affected. In the vast majority of the country, ethanol has been helping to hold down gasoline prices for consumers.

Read the full analysis here. READ MORE

Excerpt from AgWeb: “The short answer is yes, the long answer is it is [pushing prices higher] but is disproportionately small compared to what gasoline is. Gasoline is doing the heavy lifting on the rise in fuel prices.” (Jordan Fife, ethanol trading manager of BioUrja Trading)

Since the flooding that occurred on March 18, West coast ethanol basis versus Chicago ethanol basis was 41 cents. Last year it was 23.5 cents, he says.

“So, we've got a 17 and a half cent increase on the West Coast load for the ethanol portion of the fuel,” Fife explained. “Trade for the East Coast for ethanol, since the flood is about plus four, so Chicago plus four cents. The same time last year, we were trading flat, so it is increasing a bit there. Then plants for ethanol in Nebraska, Iowa were at about minus 10 cents last year, at this time. Right now, it’s about minus one cent.”

While he admits those are some big numbers for ethanol, when you look at the gasoline side of the equation the numbers are even higher.

“We were about $1.18 at the Gulf Coast for gasoline prices on December 24,” Fife said adding that today they were $1.87. “That's a [69-cent] increase. Compared the biggest increase I could find for ethanol, 17.5 cents, and the biggest one I could find for gasoline, 79 cents, and you tell me which is a which is doing the heavy lifting there.” READ MORE