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Here's a distillation on the annual Feb. USDA forecast for next ten years regarding corn, ethanol, etc. Note the forecast for very low corn prices going forward out to year 2025. Assuming ethanol can regain at least the $1.70 level, REX will profit handsomely in years to come off the crush-spread if corn prices indeed stay that low...
http://www.ethanolproducer.com/articles/11926/usda-releases-10-year-projections
USDA releases 10-year projections
By Erin Voegele | February 13, 2015
The USDA has released new 10-year projections for the food and agricultural sector, reporting that approximately 35 percent of total corn use is projected to go to ethanol production through 2024.
Regarding biofuels, the USDA predicts ethanol production will remain near current levels over the next decade, with corn remaining the primary feedstock. The blend wall and projected declines in overall U.S. gasoline consumption are assumed to constrain domestic ethanol production. E10 is expected to continue to be the primary gasoline fuel blend. Moderate gains are expected for U.S. ethanol exports.
Food and industrial use of corn for purposes other than ethanol production is projected to rise at a moderate pace over the next decade. U.S. corn exports are expected to increase in response to strong global demand for feed grains to support growth in meat production. The U.S. market share of global trade in corn is expected to reach nearly 45 percent by 2024. The USDA predicts, however, that trade competition from Argentina, Brazil and the Former Soviet Union, as well as continued corn for ethanol production in the U.S., will hold the U.S. trade share well below its 1970-2000 average of 71 percent.
Corn prices are expected to decline in 2015/16 and increase moderately in 2016/17 as ending stocks-to-use rations fall due to growth in feed use, exports and, in the longer run, demand for corn by ethanol producers.
According to the USDA, more than 5.13 million bushels of corn went to ethanol and byproducts in 2013/14. That volume is expected to increase through 2015/16, when it reaches 5.2 million bushels, drop off for several years, reaching 5.08 million bushels in 2018/19 through 2020/21, before gradually increasing again through 2024/25, when it reaches 5.2 million bushels.
Planted corn acres are expected to remain relatively steady over the next 10 years, ranging from a low of 88 million acres in 2015/16 to a high of 90 million acres in 2016/17 through 2018/19. Bushels per harvested acre are expected to increase steadily, from 158.8 in 2013/14 to 185.3 in 2024/25.
Farm price is also projected to be relatively steady, ranging from a high of $4.46 per bushel in 2013/14 to a low of $3.40 per bushel in 2015/16. From 2017/18 through 2024/25, prices are expected to range from $3.50 per bushel to $3.75 per bushel.
According to the report, the European Union is expected to remain the world’s largest importer of biofuels through 2024, with biodiesel accounting for the majority of EU biofuel imports. Brazil is expected to supply much of the EU’s ethanol imports. In addition, the EU is expected to import oilseeds and vegetable oils for use as biodiesel feedstocks, mainly from Ukraine, Russia and Indonesia.
Argentina, Brazil and the U.S. are expected to be the world’s largest biofuel exporters, with Argentina focused on soybean biodiesel, Brazil on sugarcane ethanol and the U.S. on corn ethanol. While exports from Argentina and Brazil grow steadily in the USDA projections, exports are constrained as both countries increase domestic use of biofuels.
A full copy of the 10-year projections can be downloaded from the USDA’s Economic Research Service website. [ http://www.ers.usda.gov/publications/oce-usda-agricultural-projections/oce151.aspx ]
Specifically on the storage issue? I'd like to see some of those articles, at least one or two....
Value, I'll say it again: not s chsnce that scenario plays out. I could paste a dozen well researched pieces on the opposite side.
Very interesting article. If price drops way further on oil, it indeed makes you wonder how it will be on ethanol.
Price is depending on what the market is willing to pay for it. But will there be a limit to that?
Will ethanol demand not stay at a certain level, even when oil would be cheaper due to EPA rules and the demand from other countries?
Can it be so that there will be a moment that the demand for ethanol will keep the price above a certain level, or is that just wishful thinking?
First will be the big possibility of oil production gluts becoming so bad that storage becomes a serious issue and possibly gets exhausted, leading to a further, really ugly collapse in oilprices (too much production, no more place to store it). Pedro de Almeida wrote an article within the past 48 hours at S.Alpha which was the first one i've seen to really explore the storage issue. The "no more storage" could possibly come within 3-4 months as i recall him writing.
See http://seekingalpha.com/article/2916756-why-crude-oil-prices-will-have-to-fall-hard
In that scenario of oil down at $30 or less because of no more storage, i think ethanol would be at $1.20 or so and REX down to low $40s. (I shudder to think what GPRE and PEIX would be at.)
I'm waiting to see if this looks like the scenario that is indeed going to play out and that's when i'd be looking for a bottom for ethanol and possibly buying REX again.
JMO....
Dutch, this price sounds about right for the next quarter or so. Higher after that imho.As rbob tracks wti and ethanol tracks both, this implies a possible 20% ipside on ethanol bringing it back to about $1.80. Margins ok with that assuming current corn and byproduct pricing.
Seasonal demand increases will help price too.All in all should mean significant sp upside for ethanol stocks later this year. I have not re entered yet, but April or so might be the time to do so if not sometime in March.
Glta
Heard some dutch analysts on north sea oil, which is currently trading around $60, expecting it will not go much higher then that, $70 at the most. Guess that would bring US oil price to a high close to $60 at the most for the next few months.
That off course if this anlysts is any good
Another thing i'm toying with is playing the immense volatility on oilprice and natgas prices with those 3x leveraged bull/bear ETNs/ETFs-- like UWTI/DWTI and UGAZ/DGAZ.
CAVEAT: these are NOT (NOT! NOT!) long-term "buy and hold" "investments" (because of the terrible "decay" over time of their share-prices) but rather short-term instruments for swing-trading the rising/falling commodity prices.
Thanks Value. Yes some off topic info, but it is compelling. The medical isotope especially. ( my son is a medicinal chemist in pharma, so I am already interested in the sector). Re ethanol and rex and peix....for now I may buy peix and sell covered calls , near money, short time span just to make a few bucks and see what happens. Cant option rex.
Good post, Catkin.
Oh, there are some biotech and tech plays that show lots of possible upside. One of my picks, Mei Pharma (MEIP), has just rebounded off an oversold bottom and is now up 26% in past two weeks for me (on a cost-basis of $3.86) --presently in $4.80s with some respected analysts touting $10-$16 PTs.
That's just one that would be a good buy on any dip (if it dips much from here)....
I also like (and recently bought) Perma-Fix (PESI), which does nuclear waste cleanup and various services for the govt; trading around $4.30s now, it should be about $8 later this year just on its govt contract work --it's a big turnaround story after the govt sequester/shutdown slashed revenues for PESI and other contractors in 2013-14. Contracts are being awarded once again...
PESI's really major "blue sky" potential, though, is in its new medical isotopes division, which could realistically make it a $30-$100 stock within 15-30 months. There's a good S.Alpha article on that segment from a woman CFA and also some discussion by several shareholders at SSKILLZ' Value Microcaps board here on IHUB. It's just a matter of time before institutional and retail investors return to the PESI story, especially when their medical isotopes segment garners more attention.
Okay, this post is already "Off Topic," but you get the idea of things i'm looking at-- biotech and tech plays....
The scenario these talking heads paint may come to pass, but I seriously doubt it. My favourite expert on this out there is Phil Flynn, ( regular column on barcharts daily,)who I think nailed it with his firm call that oil bottomed at $44. The wti charts looks like it as well
Since then oil has been relatively stable around $50 plus or minus a buck or 2. It drops each Wednesday when production volumes are reported, and rises thur/Friday when rig counts are reported.
Today is a good example. Along with that fluctuation, rex share price follows. Possibly worth a very short term in/out trade to play that repeating scene. However, for a longer term hold margins have to go up and hence my waiting for ethanol prices. The rbob is up significantly from the lows and the forward curve shows that. Come spring and summer driving season it should go up quite a bit more. With it, ethanol demand and price. Low Corn prices, good weather, export demand and a decent rfs decision would seal the deal, all of the latter still up in the air.
You mention some better stock plays right now. I probably agree. Which did you have in mind?
Meanwhile, nearly all the topic oil experts are saying that for the next several weeks at least the overproduction of oil and ever-higher inventories will "in fact" take oilprices to new lows.
That means lower gasoline prices, which as we've seen usually means lower ethanol prices.
If oil indeed goes back to low $40s or into $30s, REX will likely come down to $50 or lower, and that's when i'll seriously re-consider buying, especially if we get a positive outcome on the EPA decision re: the RFS and also if it looks like strong export demand will put a real floor on ethanol prices around 1.50 (preferably, 1.60 or higher).
Even then, there may be better stock-plays out there if crush spreads are looking to be too thin for the longer period.
eventually ethanol demand has to increase. When is the question. Maybe 2 quarter.
Yes, good article, with a detailed bear case laid out along a few scenarios.
I had to post a correction to Tristan's article-- namely, he evidently missed altogether the major news in REX's earnings PR and conference call for Q3, the news of REX paying off ALL ITS DEBT near the end of Q3 and beginning of Q4.
Anyway, i'm glad to see someone else writing extensively about the ethanol sector for S.Alpha (he's previously written pieces on GPRE, PEIX and the overall sector).
Sounds like a lot, since REX float isn't that big.
But if I can do a guess...It looks a bit like a pattern to me lately that what happens one day to one of the companies PEIX or REX happens the other day to the other company.
So my guess would be that REX goes up today and PEIX stays behind.
Dutch
There doesn't seem to be a lack of shorts. They put it to us today. Last count shows 1.4 million at 7-8 days to cover.
TT
Yeah, they're a month behind GPRE and PEIX, likely not reporting until late March.
Rex is far behind GPRE and PEIX today, any idea why? Is it the float, or maybe a lack of shorts? Or does it say something about earning expectations? They report later don't they?
REX and the others appear now to be trading almost entirely on the price of gasoline, which is based on price of oil, and oil is see-sawing around now the past several days, and will likely be doing the same going forward for a while.
Yet oil may be headed down substantially, as many analysts have been calling for. That's why i pulled any bids for buying REX here and just want to wait it out. We've got a long wait anyway until late March to hear from the company (Q4 earnings), unless they do the unusual thing and come out with some kind of statement ahead of time.
Look at this article today and you'll see why industry insiders see more bearish pressure on oil-prices (and that means bearish pressure on ethanol prices):
http://www.wsj.com/articles/oil-holds-on-to-bulk-of-recent-gains-1423031216
Refineries typically shut units to perform seasonal maintenance in February and March, so analysts expect inventories to continue growing in the coming weeks as refiners buy less crude.
“Overall, that was a pretty bearish report [the EIA report this a.m. on crude oil inventories], and I think the market’s taking it as such,” said Kyle Cooper, analyst at IAF Advisors in Houston. “I’m not sure the market’s fully factored in the reality that we’re going to build a lot of crude in the next few months.”
US ethanol production margins pressured by excess supplies: ADM CEO
Houston (Platts)--3Feb2015/326 pm EST/2026 GMT
US ethanol production margins have been pressured lower by excess supplies, Archer Daniels Midland CEO Juan Luciano said Tuesday.
In the company's fourth-quarter 2014 earnings call, Luciano pointed to massive stockpiles of US ethanol as a factor in the lower margins seen at the end of 2014 and for much of the early part of 2015.
"While US ethanol demand was seasonally strong, boosted by the domestic response to lower gasoline prices, high industry production has built excess inventories," Luciano said. "Margins in this industry should remain challenged until supplies are better aligned with demand."
US ethanol stockpiles finished 2014 at 18.845 million barrels, 2.707 million barrels, or 14.4%, higher than where stockpiles finished 2013, Energy Information Administration data showed.
Meanwhile, December production of US ethanol moved up 14.52 million gallons, or 11.23%, from November to an all-time high of 1.29 billion gallons, Environmental Protection Agency data showed.
Fourth-quarter 2014 production averaged roughly 950,000 b/d, up from 896,000 b/d in the fourth-quarter of 2013. That soaring production helped build stockpiles to two-year highs, sending US ethanol prices across most regions plunging to nine-year lows in the early part of January.
With tumbling returns from the spot market, production margins took a significant hit.
The Platts estimated production margin for a typical US Midwest dry-mill ethanol plant plunged 54.66 cents, or 51.6%, from the end of third-quarter 2014 to 51.33 cents/gal at the end of fourth-quarter 2014.
That margin has since tumbled further to 39.73 cents/gal for the week ended Friday, which has actually risen for two straight weeks from a six-year low of 30.84 cents/gal hit in the week ended January 16.
"We will continue to work to optimize cost and product mix in the corn business to maximize profitability," Luciano said.
--Jordan Godwin, jordan.godwin@platts.com
--Edited by Derek Sands, derek.sands@platts.com
The bear narrative is to focus only on supply
So far that has worked for them. The tide is turning and supply will tighten in the next few months for sure. I held off today as tomorrows increased supply numbers were easily predicted. A short term negative for oil etc. Watch the rig counts. As they continue to drop the bear narrative will continue to weaken. Those on the short side will talk their book and keep trying to convince people that oil is going to 30 etc. Gs and MS come to mind. When oil comes back to 60 they will suddenly "predict" we saw a bottom.Good for them.
We have an advance look at oil inventories for USA, from the API (Amer. Petroleum Institute) late this afternoon, which is why oil is selling off in AH down to around $51.60s or so down from intraday high over $54:
API reports bearish inventory number for oil • 4:58 PM
Stephen Alpher, SeekingAlpha News Editor
U.S. crude inventories rose 6.1M barrels last week, according to the API. That's less than the previous week's whopping 12.7M barrel gain, but well ahead of trade forecasts for 2.8M barrels.
As high as $54 a couple of hours ago, WTI crude gives back some more of its gains for the day, now selling for $51.75.
USO -1.5% after hours.
Yes, timing is everything and the hedge fund guys always seem to know first when there is a sea change happening. I don't trust this remarkably kabooooooooomed 24% up-move by oil from last Thursday's intraday low of $43.58 up to the high thus far today in $54s. That seems patently ridiculous except as some kind of shortcovering / shortsqueeze. And, i suspect, a head-fake for anyone trying to buy in now.
Tomorrow's EIA report will not only report on ethanol but of course on crude inventories, too, and an expected high number may just take oilprice back into upper $40s, and gasoline would drop, ethanol price would likely drop, and REX would likely come back down to $57s or so.
Obviously the hedge funds have decided it time to go long oil.
Ethanol is up with gas. I almost bought back into rex today, but decided to wait to see if tomorrows inventories cause a little pullback first. Then get back in and wait to see the big rig drops Friday. Interesting week for sure. While my oil stocks are still very beat up, I held them at the lows and they are up 25% off those in some cases. Not fun, but eventually I hope to recover most of the losses, but it will take time. Meanwhile, the ethanol play could be very good at some point this year. Question of timing, as always!!
It will hold up but possibly stall then head higher on rig count news Friday. Market is looking to supply tightening h2 15. This is a rational recovery in oil as smart shorts manipulated it down and cover and go long now. What this does to ethanol is what I am waiting to see.
If anything, that should create a situation where crude stockpile is growing, as some of it might not be refined.... though industry spokespersons are saying they hope to keep operations going despite the strike.
The real reason for the oilprice spike seems threefold 1) rig count decline, 2) short-covering by those shorting oil; 3) herd behavior of people going long on oilprices.
Let's see if it holds up through tomorrow's EIA data on oil inventories.
Is't the reason for the oil price movement in the strike at oil companies in the US?
I don't know wtf to think.... The irrationally big move up by oilprice has me utterly flummoxed. There's no reason for it to move up so high so fast when crude inventories are rising and rising (as Wednesday's weekly data will likely show).
This looks like a sucker's rally and short-covering, but, again, wtf do i know?
prices firming up I think. Exports will help demand. Oil has bottomed. Still waiting for ethanol to go up with gas. Entry point may be very soon, as the sp creeps up- over 60. Watching Peix as well. My main concern is the thin margins at these prices . If they don't increase the sp will be stuck in this range .
What do you think?
More about Brazil's current and future ethanol situation-- note the later paragraphs in this report from Platts.com about ethanol imports from USA, which would bolster demand and prices for USA ethanol... The last sentence in this report is also a huge matter, given that, as i recall, it would mean about an extra 300 million gals. of ethanol needed for Brazil if the blend level is raised to 27.5%.
------------
Ethanol prices rise in Brazil after measures to boost gasoline taxes
Sao Paulo (Platts)--30Jan2015/236 pm EST/1936 GMT
Ethanol prices in Brazil have been on the rise following recent measures to increase gasoline taxes in the country.
Since the announcement on taxes made by the country's finance minister January 19 ex-mill hydrous fuel ethanol prices assessed by Platts have surged 7%, rising Real 100 to Real 1,600/cubic meter.
To increase or, in this case, reinstate the Cide tax, the government needs a notice 90 of days before the change takes effect. To collect the full tax during the waiting period, the government temporarily increased the PIS/Cofins tax.
The law calls for the PIS/Cofins tax to increase to 48 cents/liter on February 1. After the 90-day period, the Cide tax will be reinstated at 10 cents/liter while the PIS/Cofins tax will be reduced to 38 cents/liter.
Article continues below...
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The law was published Thursday in the country's Official Diary. According to traders the response from consumers will start to be felt in the upcoming days, as the increase in gasoline taxes and recent gains in ex-mill hydrous prices have just started to reach the pumps.
A survey done this week by Folha de Sao Paulo, a Brazilian newspaper, shows the ethanol increase at the pumps has been passed on to consumers at a faster rate than gasoline's gains.
Its survey shows that ethanol was 3.5% higher than a week ago at fuel stations in Sao Paulo. Using data from 50 municipal stations, the average price of ethanol rose to Real 1,989/cu m. Gasoline was at Real 2,914/cu m, up 0.5% in the same period.
Hydrous ethanol parity at the pumps rose to 68%, compared with 66% last week.
Hydrous ethanol is used in Brazil as a stand-alone biofuel (E100) on flex-fuel vehicles. To be more competitive than gasoline in Brazil, E100 has to be below 70% of the price of gasoline.
IMPACT OF HIGHER ETHANOL PRICES
Producers were heard Friday offering hydrous fuel ethanol at higher levels, up to Real 1,650/cu m on ex-mill Ribeirao Preto basis. Traders expected prices to reach those levels next week.
There could be resistance by the market once hydrous ethanol prices reach those levels, since the current high stocks available for use in the intercrop season should cap gains.
According to estimates by Kingsman, the agricultural analysis unit of Platts, hydrous stocks are estimated to end the season at around 1.25 billion liters, compared with 440 million liters last season.
As for the possible shift in the mix toward more ethanol production in the next sugarcane crop in the Center-South -- the largest producer and consumer region in the country -- due to the higher attractiveness of ethanol, Kingsman anticipates it should be limited, with forecasts for an ethanol mix of 56.8% (i.e. 43.2% sugar) for the next crop, about the same as the current crop.
Although the price floor has moved higher, on the forward curve sugar pays better than ethanol starting from April.
Another possible impact is on the flow of imports to enter Brazil next season [i.e., from USA]. With the higher ex-mill prices, traders see a potential for more imports, especially considering the recent slump in US ethanol prices, which is keeping the arbitrage open.
While major producers might not take part in these operations to maintain higher ex-mill prices, other players see a possibility for more product to come in.
Market participants said that in the most recent meeting with the ANP it was proposed that the volume that must be sold under long-term contracts between producers and distributors be raised to 100% from 90%.
On February 2, the government is due to meet and an announcement is expected regarding the implementation of a higher anhydrous ethanol blend into gasoline, from 25% to 27.5%, or possibly to 27%.
--Beatriz Pupo, beatriz.pupo@platts.com
--Edited by Jason Lindquist, jason.lindquist@platts.com
EPA will (finally!) release 2014 RVO for RFS in Spring, 2015
http://www.platts.com/latest-news/agriculture/fortworth/rfs-mandates-to-be-released-in-spring-epa-official-21876631
JPMorgan filed with the SEC under Rule 13d-1, now owns 5.1% of REX shares.
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
408,306
This would appear to put them behind only Dimensional Fund and Renaissance Technologies as of last reporting period (period ending 9/30/14), unless i missed some other changes in beneficial ownership since then....
http://www.nasdaq.com/symbol/rex/institutional-holdings
This is a general article about USA ethanol exports (note that the first plant talked about is Patriot, of which REX owns ~27%).
http://www.ethanolproducer.com/articles/11812/regaining-ground
Regaining Ground
Year-end U.S. fuel ethanol exports are expected to exceed 800 million gallons, second only to the record-breaking 1.19 billion gallons exported in 2011.
By Holly Jessen | January 20, 2015
[PHOTO: ACCESS TO RAIL: Patriot Renewable Fuels, located near Annawan, Illinois, less than 150 miles from Chicago, is situated on an Iowa interstate short line that connects to Class I railroads. Its products, some for export, ship to the Gulf Coast and the... ]
Since startup in 2008, 10 percent or more of the ethanol produced at Patriot Renewable Fuels LLC has been exported. Judd Hulting, plant commodity manager, emphasizes the plant’s proactive strategy to exports. It’s an approach he believes more ethanol producers need to adopt. “We need to be more proactive and do what we can to open new markets, expand markets and educate, whether it’s the consumer in America or the consumer in any of these destination markets,” he says.
The 130 MMgy plant exports the majority of the distillers grains produced there and the amount of fuel ethanol exported is growing. To handle production of anhydrous ethanol for export markets and also meet domestic specifications, the company has installed additional mole sieves. “We continue to believe exports are very important, not only for our business but for the whole ethanol industry,” he says.
Patriot Renewable Fuels has participated in U.S. Grains Council-led trade missions overseas and has hosted foreign distillers grains buyers at its plant, something Hulting would like to also offer to fuel ethanol buyers from other countries. “You’ve got to go out there and meet those customers, face to face, shake their hand, and at the same time, welcome them back to your plant and your local community and develop that trust,” he says.
Green Plains Inc. is another ethanol producer that sells its fuel into the export market. During the company’s Oct. 28 third-quarter financial results call, Todd Becker, president and CEO, said a minimum of 15 percent of its fourth-quarter ethanol production had already been sold into export markets. “We have volumes sold and destined to India, the Philippines, Brazil and other developing countries, along with our normal buyers like Canada and others,” he said. “Interestingly enough, we're booking export sales into 2015, extending into the third quarter.” This is not typical, he said, adding that Green Plains has more gallons booked ahead for export than it’s had in the history of the company.
Becker also talked about how the specs for export gallons actually result in slower production speeds for Green Plains. “I don't think people think about that, but there is definitely an inverse relationship because of the water spec that we have to produce,” he said during the call.
Ideal Combination
It’s been an interesting year for exports for the industry as a whole. “We have seen demand growth in a number of existing markets, places where we have been exporting for the last several years, but we have also seen the emergence of several new markets,” says Geoff Cooper, senior vice president of the Renewable Fuels Association.
Looking at the data through October, the latest numbers available at press time, year-to-date exports sat at 669.3 million gallons, roughly 40 percent higher than exports through October in 2013. By the end of the year, the U.S. ethanol industry is expected to export about 803 million gallons, the RFA estimated, considering that exports are typically up in the fourth quarter, following seasonal patterns. “I think we could be as high as 825 or 830 million gallons, somewhere in that range,” Cooper said in December, adding he expects continued growth in 2015. “Based on what we know today, we would expect 2015 to be quite similar to what we saw this year, or maybe a couple hundred millions higher. We could end up seeing about a billion gallons of exports.”
On the import side, only 67.5 million gallons of ethanol from other countries had come into the U.S., through October. In fact, imports have averaged less than 7 million gallons per month. This puts the U.S. in the net exporter category, a title it had held 14 months consecutively at that time.
Cooper pointed to two factors for growth in exports. One is the price of ethanol, which created favorable blending economics for the high-octane fuel. A second stimulant is demand created in countries with renewable energy programs. “In many cases, their local or domestic capacity isn’t adequate to meet the requirements or targets of those programs so the alternative is to import from countries that have surplus capacity,” he says.
Max Thomasson, director of global ethanol trading at CHS Inc., sees the same thing. “There’s been an increase in exports with the cheap price of ethanol on the forward curve, which is brought about mostly by relatively cheap corn,” he says.
CHS has offices in Brazil, Switzerland and Singapore, and exports U.S. ethanol to Brazil and Asia, primarily the Philippines. “That demand has grown by about 12 percent, year on year, for the last three years, which is driven by government mandates in the Philippines,” he says, adding that the company has exclusive marketing agreements with eight ethanol plants and also owns the 133 MMgy plant in Rochelle, Illinois. After first sourcing from those nine plants, CHS purchases ethanol from third-party sellers for export.
By the Numbers
Like last year, Canada is on pace to be the No. 1 export destination for U.S. ethanol, Cooper says. Through October, the nation’s neighbor to the north was the destination for 44 percent of total U.S. exports. Brazil was in the No. 2 slot, importing nearly 80 million gallons through October, nearly double the total for last year. “We don’t really know exactly how things are going to go with Brazil until we know what their sugar crop looks like every year, and their market dynamics, whereas Canada has been much more consistent,” he says.
Exports to Canada, Brazil and the European Union helped the U.S. cross the record-setting 1 billion gallon mark in 2011. In all, about 800 million gallons went to those three markets alone, Cooper says. Then, exports dropped 38 percent from 2011 to 2012 and another 16 percent from 2012 to 2013. Two of the biggest impacts were a rebound in the Brazilian sugar and ethanol sector and the EU tariff placed on ethanol imported from the U.S.
Interestingly, U.S. ethanol is still making its way to the EU, most of it via Peru, which doesn’t have to pay the tariff, Cooper says. In 2013, Peru was the fifth largest market for U.S. ethanol. Although the numbers are down somewhat this year, the country does continue to import U.S. ethanol, the majority of which then ends up in the EU. It’s a pattern of shuffling products around that develops as a result of trade barriers and restrictions on free trade. “Obviously the solution would be to not have any of those tariffs or trade barriers and let ethanol flow to where it makes sense, based on the economics,” he says.
Despite the tariff, a small but growing number of gallons is going directly from the U.S. to the EU. By the end of this year it’s expected to end up at about 50 million gallons. “That’s almost double from where we were last year, but still a long way from the high-water mark,” Cooper says, adding that 250 million gallons of U.S. ethanol were exported to the EU in 2011.
Looking ahead, lower gas prices at the end of the year may erode demand in export markets where ethanol was being blended due to the price, Cooper says. However, ethanol is also blended for its octane content. For example, through October, the United Arab Emirates had imported 68 million gallons of U.S. ethanol. “That’s about twice what they did last year, so they very likely will be the No. 3 market in 2014,” he says, adding that the catalyst is the country’s oxygenated fuel requirement. Ironically, the country is a member of OPEC and has its own crude oil resources.
In addition, a handful of countries are rapidly opening up as new markets for U.S. ethanol, Cooper says. On the top of that list is South Korea. In 2013, the country imported 4 million gallons of ethanol and it’s on pace to bring in 31 million gallons by the end of this year. Tunisia is another interesting new market. Until October, when the country imported 11.3 million gallons of U.S. ethanol, Tunisia had only imported U.S. ethanol in three separate months.
Cooper believes there is plenty of opportunity for future growth both in existing markets like Canada and new and emerging markets. One example of the latter is China. It’s the second largest market for gasoline in the world, second only to the U.S. “They’ve put their toe in the water on ethanol imports, and we just think there is a huge opportunity to forge a long-term trade relationship with China,” he says. He also mentioned Singapore as a market to watch. It’s a major crude oil refining hub for Southeast Asia. “If we can get more U.S. ethanol into Singapore, where gas is formulated for that part of the world, I think that’s a big opportunity,” he says.
Author: Holly Jessen
Managing Editor, Ethanol Producer Magazine
701-738-4946
hjessen@bbiinternational.com
DDGs-- excellent indepth article from Ethanol Producers Magazine, updating from their two articles in past 6 weeks. DDGs prices have rebounded back very strong in Dec. and Jan., and will help in a small but significant way to compensate for the ultra-low ethanol prices:
http://www.ethanolproducer.com/articles/11811/beyond-boats-to-china
Beyond Boats To China
After halting distillers grains imports late last year, the world's top DDGS buyer is poised to resume business, but on what terms?
By Tom Bryan | January 18, 2015
The prospect of China reissuing distillers grains import permits bodes well for the product's American exporters, but Randy Ives isn't ready to gloat about it. “We have to be cautious,” says the longtime DDGS marketer and director of ethanol services at Gavilon. “The uncertainty from China has put the industry in a tough position in the past. Collectively, we need to take additional steps to manage the contract performance risk that’s been an issue before.”
Ives and other DDGS exporters are necessarily guarded about China’s decision in late December to lift its ban on Syngenta’s MIR 162, the genetically modified grain trait at the center of the country’s three-month-long constriction on U.S. corn and DDGS. “Of course, it’s huge news for distillers grains, but that doesn’t instantly return them to the pedestal of being an important trade partner to the ethanol industry and to the U.S. ag industry as a whole,” Ives says.
Ives is one of many U.S. DDGS marketers who greeted the late-December announcement from China with incredulity and a stern vow to not get stung again. Less than two years after carrying out a questionable anti-dumping probe that severely disrupted the international DDGS market, China’s feed regulators claimed to have discovered traces of then-banned MIR 162 in cargos of both corn and DDGS in late 2013 and throughout 2014. By mid-September, China was fully enforcing the ban, quarantining large quantities of U.S. corn and DDGS on its docks and turning shipments away at sea. American exporters, logistics providers and Chinese importers together lost millions as communication was lost, contracts were broken and DDGS prices slid more than $100 a ton. By October, imports to China were nil as the commodities world waited for a resolution.
As painful as China’s fourth-quarter DDGS timeout was, Ives says, the market displayed incredible resilience and American traders remained buoyant through it all. “Our product’s global market is larger, more distributed and more stable than it used to be,” Ives says. “We have buyers in 80 countries now, so when China stepped out last fall, customers in other nations stepped in and have stayed. On top of that, we knew China would come back. We just didn’t know when.”
China’s sudden acceptance of MIR 162 was reportedly accelerated by pressure from the U.S. government as well as an internal push from China's feed millers. Whatever the cause of the decision, it is clearly welcome news for American producers and marketers of distillers grains. By Christmas, the announcement’s buzz alone had caused DDGS prices to rise $70 a ton. Traders warn, however, that the MIR 162 resolution is not a panacea for every challenge they face in China. “There are other problems, other barriers, in play yet,” Ives says. “We’re still trying to figure out what the running rules are and what other technicalities we will have to abide by.”
Ives says selling DDGS into China could change. Some exporters might start demanding deposits, for example, asking for up to 20 percent down before shipment.
Changes on China’s end may include volume requirements, or DDGS import allocations. In the past, importers have sought and received permits based on shipment orders they had already placed. “That could possibly change, where importers could be required to have an import permit in hand before buying the product,” Ives says, explaining that tighter control over permits could buy China time to work through its grain reserves.
Still, the end of the MIR 162 ban does mean that DDGS exports in 2015 have the potential to exceed the record volumes sold in 2014, according to Alvaro Cordero, manager of global trade at the U.S. Grains Council. “Despite how 2014 ended in China, distillers grains had a fabulous year—a record year—and we’ll probably do it again,” says Cordero. “By October, when China started to shut down, we had already achieved higher annual DDGS export sales than we had for the entire previous year.”
In fact, DDGS exports for calendar year 2014 not only set a new annual record, but surpassed the long-anticipated 10 million metric-ton mark for the first time in history. While November and December sales were not available at press time, DDGS exports had already reached 9.96 million metric tons—more than any previous year’s total by almost 200,000 metric tons and more than a quarter of the nearly 37 million metric tons produced in the U.S. last year. Sales of DDGS exclusively to China reached 4.24 million metric tons, just 5 percent short of the record set in 2013. “That’s remarkable considering that it happened in less than 9 months,” Cordero says.
Cordero, a former commodities trader, says he understands the unease DDGS marketers have about losses they incurred because of China’s actions. However, he says, the wide margins made on DDGS sales in early 2014 more than offset those hits. “If you sum up the money that was made when prices were good, bad and ugly in 2014, the industry came out of it in a positive position,” Cordero says. “Yes, it was hard for a while, but put this in perspective: It was a few bad months.”
Marketers like Sean Broderick of CHS Inc. were somewhat reticent about the DDGS market prior to China’s acceptance of MIR 162. Those bearish positions started to flip when the ban was lifted, Broderick says, telling Ethanol Producer Magazine before Christmas that DDGS marketers were bullish but treading carefully. “We are cautiously optimistic about this having seen the pitfalls of pricing ourselves out of so many markets,” Broderick says. “Any distillers grains that gets into China right now is going to be valuable. Their desire to bring it in is going to be pretty huge, but it’s going to contrast with our desire to protect ourselves. The industry will probably load a lot of boats to China this year, but we also have to keep the interests of our other customers in mind.”
At peak, China was importing almost 20 percent of all distillers grains produced in dry form in the United States. “That’s sort of insane,” Ives says. “If we want to do what’s best for the industry, we need to continue to diversify our demand base.”
Broderick says, however, that diversification is hard when China is willing to pay more for DDGS than the rest of the world. “You just can’t ignore it despite your best efforts,” he says.
Huge Price Swings
DDGS exporters are entering 2015 with a wind at their backs, having worked fervently to find new destinations for DDGS when China wasn’t accepting the product in the fourth quarter of last year. Losing the China market spurred traders, under pressure, to sell the product at whatever prices worked for opportunistic buyers. At its lowest price point last year, DDGS was available for 70 percent the price of corn. That was a stark contrast to the product’s market value before China blocked imports. “We were in a very tight year where protein was high-priced and people were willing to pay a premium for distillers,” Ives explains. “We weren’t 85, 95 or 105 percent the price of corn, we were 150 percent the price of corn on some spot sales.”
Those big prices—at times hitting $350 per ton FOB to New Orleans—drew criticism from both new and established buyers. “The domestic guys had a problem with it. Thailand had a problem with it. It was hard to blame them for pushing back, but all we could say was ‘China will take it,’” Ives says. “The demand was that huge.”
Before China virtually stopped importing DDGS in October, it was averaging nearly 500,000 tons a month through August and trending toward 6 million metric tons on the year. By September, restrictions had tightened and just 167,000 tons officially got through customs before rejections started in earnest the following month. By the time it was over, every major U.S. exporter had been adversely effected. Chinese importers also took big hits. Some traders estimate that as much as $600 million worth of DDGS was stranded in quarantine on Chinese docks in the thick of the restrictions. Back in the U.S., marketers worked their contacts hard and gradually sold down about 1.5 million metric tons of DDGS originally contracted for China.
“It all happened pretty fast,” Ives explains. “Marketers that owned product at $200 a ton at the plant were faced with buyers in China that couldn’t perform on their contracts. It was difficult to find destinations for DDGS and financial losses incurred were considerable.”
Today, U.S. DDGS exporters are hinting at taking action to go after those broken contracts in China. “Regardless of what happened, they still bought it and we still have a valid contract that says we owe them a bunch of distillers at that price,” Ives says. “We intend to negotiate some sort of payment for it.”
Predictable Comeback
Prior to China’s acceptance of MIR 162, DDGS values “at the plant,” or the contracted prices paid to producers, had already rebounded to $125 to $150 a ton. “The Northern Hemisphere market is actually quite strong,” Jason Charles, senior trading manager with Purina Animal Nutrition LLC, said in mid-December, explaining that the DDGS market was in a state of improving health even without the help of its largest foreign customer. “When China went away, we had a half million tons of distillers to do something with. Somehow, some way, it all started moving.”
Charles said the industry went through about 60 days of “not knowing what direction it was going” as DDGS initially contracted for China slowly found buyers elsewhere. “Thirty days ago, the bid-ask CIF NOLA was $130 on $155. Today, it’s $215 on $230,” Charles said in December, explaining that prices at the time were already lifting as China showed signs of opening back up.
Looking back, Broderick agrees that the removal of excess DDGS from the market, along with improved logistics and a general sense of optimism was boosting prices before China lifted its ban on MIR 162. Broderick says the sheer speculation that China would start issuing import permits in the spring was giving DDGS a boost. Just before and immediately after the MIR 162 announcement, DDGS prices shot straight up. “We’re already back where we were when China was going full bore,” Broderick says. “In mid- to late-December, we went from $110 FOB-Illinois to $185. “That’s a huge move, and it was driven by bulk shipments out of the Gulf (of Mexico).”
Before the Dec. 22 announcement about MIR 162, China’s commodities import inspection agency, the General Administration of Quality Supervision, Inspection and Quarantine, gave no outward indication that it was preparing to allow U.S. corn and DDGS back into the country. However, Ethanol Producer Magazine learned in late December that one major U.S. exporter had been allowed to ship 50,000 tons of DDGS to China, a vessel originating out of the Gulf. Several more shipments were planned for January. That limited activity got people talking. “Our importers called us and said a resolution was coming but nobody really had facts. It was all innuendo,” Ives says. “I really didn’t expect anything to happen until spring and then there it was.”
Portfolio Broadens
China’s renewed acceptance of DDGS represents a huge opening for the product's global market, but exporters are applying a disciplined approach to the opportunity. While China consumes 50 percent of all DDGS exports, Cordero says it is important to remember how critical other large, medium and small markets are. Since October, for example, Mexico has been the world’s top DDGS importer as China momentarily left the picture. In fact, America’s free-trade partner to the south was trending toward 1.5 million metric tons of DDGS imports at the end of 2014. “Mexico stepped up pretty seriously in the fourth quarter,” Broderick says.
Cordero says 13 of the world’s top 15 DDGS importers increased their consumption of the product last year. “Mexico was up 21 percent. Japan was up 36 percent. Korea ended up more than 70 percent,” he says. “Look around the world. Look at exports to the U.K., Columbia, Thailand and Indonesia. They’re all up by two digits.”
Charles says North Africa is another bright spot for DDGS exports. “Algiers, Algeria and Morocco are getting additional traction,” he says.
Egypt, too, is a growing market for distillers grains. Cordero says importing corn into Egypt has opened a door for more DDGS. “Once corn starts moving into these markets, combination cargos become a reality,” he says, explaining that low corn prices allow exporters of DDGS to enter markets where they have been losing market share to other feeds in recent years. “Once we walk in with corn, we’re going to walk in with those combination cargos that include distillers,” he says.
In Europe, where DDGS is difficult to import because of EU restrictions on genetically modified corn, only Ireland, Turkey and Spain remain significant buyers of the product. Turkey, however, rejected three shipments of DDGS in late November and early December, supposedly on the basis of the cargos being contaminated with an unapproved genetic corn trait. Ireland made a resurgence in buying when DDGS prices came down to 80 percent the price of corn in October. “Those low prices really brought back customers,” Ives says. “It’s amazing how fast everyone started putting on new sales around the world when the prices came down. Customers in countries that hadn’t used a pound of DDGS in six to nine months came back pretty quickly.”
Bargain DDGS prices, while short-lived, may have even gained the attention of buyers in prospective markets like the southern states of Mexico where, Cordero says, there is a large untapped market. “The potential there is enormous at more than 1 million metric tons of DDGS,” he says. “They have 4 million head of cattle or more.”
Nicaraugua, too, has huge growth potential with more than 5 million head of cattle. “They already buy DDGS—very little and just for poultry—so we just need to educate their beef industry,” Cordero says. “These almost untouched markets, which are barely on our charts today, could bring a lot of stability to our industry.”
The global DDGS market will be much less susceptible to disruptions if the USGC can successfully build more midsize markets outside of China. “Japan and South Korea are consistent 500,000-metric-ton markets,” Cordero says. “Those steady buyers help us sustain drops like the one we just experienced.”
In fact, Ives says, every DDGS-importing nation is critical to the market’s total non-U.S. sales volume. “Somebody cares about every one of those countries, all the way down to the bottom of the list,” he says. “Somebody is trading to Panama, even though they only take 12,000 tons a year.”
Cordero agrees, saying that the USGC’s principal goal is to build a broader global marketplace, as well as a larger one. “Some of these nations that buy DDGS are individually small, but they all add up,” he says. “And most of them are growing their purchases.”
In fact, the only notable nongrowers [not growing import demand] in 2014 were Canada and Morocco. Canada, typically a top-three international buyer of DDGS, only imported 327,000 metric tons through October and was surpassed by South Korea, Vietnam, Japan and Turkey. Canada’s 2014 buying was down 20 percent while Morocco had dipped by nearly a third.
Another Big Year
Marketers of DDGS expect the product's price to stay around 110 to 120 percent the price of corn in 2015, but they’re remaining conservative with their predictions. “I am not really bullish on any feed or coarse grain going into the next six months,” Charles says. “It all comes down to feedstock and in the U.S. we are going to have close to a 2 billion-bushel corn carryout and a 400 to 425 million-bushel bean carryout into August. This in itself is bearish enough, but when looking at massive global stocks, one becomes additionally bearish. We are harvesting every ninety days around the globe. It’s a revolving door. Things change often and volatility calls for vigilance.”
Broderick says the global demand for distillers grains will stay strong in 2015 and the market will be ready to supply China when it starts issuing new import permits and fully reenters the market. “In the end, it all depends on their reserves,” he says. “They have the ability to switch things on and off very quickly. The demand is over there and it sounds like the demand exists right now for it.”
Cordero believes that, with low corn prices encouraging combination cargoes, this year’s DDGS exports could easily match 2014 numbers. “If you ask me, that would be a great thing,” he says. “With the way we ended last year, it would be awesome if we achieved the same or better numbers in 2015.”
Author: Tom Bryan
Editor In Chief, Ethanol Producer Magazine
701-746-8385
tbryan@bbiinternational.com
That's the short narrative. GS will keep putting out those releases. SA want oil to stay low long enough to break US producers at the margins. This is occurring now. There are steep decline rates in shale oil plays. Need more drilling to maintain production not less. It will show up by April. Media will report it a month after the fact.bwtfdik?
The problem is that production overall is still growing and there will be many news headlines about bigger inventories along the way until Spring-Summer driving season ups demand...
Those news headlines will have a depressive effect on oilprices.
Key here also is the continuing bullishness of the USD. A reversal of that would certainly help on any rebounding of oilprices.
Rig counts plummeti g. Some shale plays shutting down. This is close if not firm.volatility yes but I say we are there.
Meanwhile, the CARD model ethanol plant is still showing a profit. (It tallies DDGs in its model.)
US weekly estimated ethanol margin tumbles 23.9% to two-year low
Houston (Platts)--16Jan2015/429 pm EST/2129 GMT
The estimated production margin for a typical US Midwest dry-mill ethanol plant for the week ended Friday shed 9.69 cents, or 23.9%, to 30.84 cents/gal, a two-year low, a review of US Department of Agriculture and Platts data showed.
The margin fell from a seven-month high for a seventh straight week as ethanol prices in the Midwest tumbled to their lowest levels since summer 2005 in three of the week's five sessions.
The estimated ethanol price used in calculating the margin was the weekly average of the Platts Chicago Argo ethanol assessment, which shed 12.91 cents, or 8.8%, to $1.3370/gal, the lowest level since June 2005.
The weekly average estimated delivered feedstock corn cost moved down 7.82 cents, or 2.05%, to $3.7299/bushel, a six-week low.
The weekly average estimated dried distiller grain byproduct price moved up $1.03 to $172.53/st, rising for the 11th time in the last 12 weeks.
The estimated denaturant cost ticked up 1.12 cents to 95.27 cents/gal, while the estimated monthly natural gas cost was steady at $3.57/MMBtu.
The denaturant cost was based on the weekly average of the Platts natural gasoline assessment at the Conway, Kansas, hub, while the gas cost was based on the January Platts Chicago ANR 7 pipeline monthly index.
The estimated production margin for a typical dry-mill ethanol plant was calculated by weighing data from Platts and government agencies, including average delivered corn cost, dried distiller grain prices, natural gas prices, certain blending costs and ethanol prices.
Fixed-cost calculations were based on a 50 million gal/year capacity Midwestern plant with 32 employees working at an average salary of $47,300/year.
--Jordan Godwin, jordan.godwin@platts.com
--Edited by Jason Lindquist, jason.lindquist@platts.com
This is the first time i've seen the Neeley Biofuels model 50MGY ethanol plant profitability in the red since i started tracking this daily column in Feb.
DTN Daily Ethanol Comments
Ethanol Futures Prices Rally Higher
Rick Kment DTN Analyst
48 minutes ago
Ethanol futures ended the week sharply higher after developing a pattern of significantly lower prices earlier in the week. Front-month futures posted a 4.5-cent-per-gallon rally after strong gains developed in both the corn and energy markets. This pushed February ethanol futures to $1.353 a gallon. Although the tone of the market remains extremely weak with inventory levels likely to remain strong over the near future, traders focused on position taking into the long weekend break.
RBOB gasoline futures shot higher once again with February futures reaching nearly 6-cent-per-gallon gains. The surge in prices comes following a week of very turbulent prices through the entire energy market. There is likely to be some additional widespread shifts seen in the market as fundamentals remain extremely weak. Most of the aggressive buying is likely due to position taking in front of the weekend. February futures posted a 5.94-cent-per-gallon rally, closing at $135.88 a gallon.
Crude oil futures rebounded after posting wide moves over $2 per barrel each of the past three trading sessions. The focus through the complex remains on the desire to step into the market before the end of the week. This moved prices above $48 per barrel once again, but it is uncertain if further traction can be maintained once traders return to the market next week. February futures posted a $2.44 per barrel gain, closing at $48.69 a barrel.
Spot ethanol prices posted moderate to strong gains following the rally in the futures market. Spot prices ranged from 1 to 8 cents per gallon higher with most regional hub locations posting a gain of 4 to 6 cents per gallon. The strong support through the complex continues to follow the recent wild shifts in the energy markets.
Ethanol rack prices continue to move lower with additional pressure seen during the week in most other ethanol markets. States posted mixed price levels, but the national average rack price fell 2.03 cents per gallon. This trend lower is expected to continue through the weekend and likely early next week as traders have yet to work through the most recent price pressure.
Ethanol plant profitability moved negative following strong gains in corn prices as well as further weakness in ethanol rack prices in South Dakota. Neeley Biofuels posted a net loss of 1.6 cents per gallon. The hypothetical plant is used to measure how changes in commodity markets might affect actual plant margins.
Every time we've thought oil might be bottoming, several days it drops another $5 to $10.
Just saying...
pretty negative outlook. However, I think oil might be bottoming here and if so, ethanol may be as well. Itchy fingers at $53
Here's the DTN 2014 year review for ethanol industry and outlook for 2015. These guys sound very cautious. Let's hope that Brazil, especially, comes through this year with the kind of big import demand for USA ethanol that GPRE's Todd Becker was suggesting on last earnings call in late October. And, of course, let's hope that the EPA's RVO for the RFS2 for 2014, 2015 and 2016 is generous to the ethanol industry, despite the chronic whining and complaining by the oil industry lobby...
http://www.dtnprogressivefarmer.com/dtnag/common/link.do?symbolicName=/free/news/template1&paneContentId=5&paneParentId=70104&product=/ag/news/topstories&vendorReference=fdc743d1-3b0a-4d08-b489-9c5715b22496
Ethanol Outlook -- Ethanol Industry Improves Financial Position
Todd Neeley DTN Staff Reporter
Thu Jan 15, 2015 07:32 AM CST
The ethanol industry closed 2014 by setting weekly production records in four of the final five weeks of the year, according to the U.S. Energy Information Administration. (Progressive Farmer photo by Jim Patrico)
OMAHA (DTN) -- Serious doubts about the future of the Renewable Fuel Standard and falling gasoline prices didn't deter the U.S. ethanol industry in 2014. Ethanol profits were solid, leading many experts to believe the industry is in a position to weather storms in 2015.
While the corn-based ethanol industry is healthy, chances are good the future of the RFS may have reached a crossroads. Speculation about what the U.S. Environmental Protection Agency will do with the RFS in 2015 and debate about potential reform could lead to real-world effects in the ethanol industry.
Corn prices were low enough in 2014 to allow ethanol producers to solidify their long-term positions. One industry expert said the RFS continues to be the backbone of the current E10 market, even with lingering doubts.
"Clearly, the very robust margins from earlier in the year are gone," Monte Shaw, executive director of the Iowa Renewable Fuels Association, told DTN late last year. "Given the great year, most plants have completely paid off their long-term debt and have a healthy cash reserve. So folks aren't in panic mode. Corn ethanol is still the world's cheapest source of fuel octane, and that's the thing to watch. We have a nearly saturated E10 market in the U.S. I don't expect that to change one bit. So to maintain current production means we have to maintain current export levels."
The industry closed 2014 by setting weekly production records in four of the final five weeks of the year, according to the U.S. Energy Information Administration. As U.S. gasoline demand takes its expected historical drop in January and February, Shaw said, ethanol production is likely to back off as well.
The nation's leading ethanol-producing state Iowa produced 3.9 billion gallons in 2014 at its 43 plants, up from 3.7 billion gallons the previous three years, according to the IRFA.
Brian Milne, energy editor and project manager for DTN's parent company Schneider Electric, said the RFS was important in sparking industry growth initially but has led to "too much capacity" in the domestic market.
"We didn't set proper goals," he said. "We are confronted with a lot of capacity and not able to move in the domestic market. I long felt the industry grew too large in the early heady days after EISA (Energy Independence and Security Act of 2007)."
Ethanol producers with the lowest costs, good relationships with buyers, and plants situated in the right places with the strongest operators, will be "fine over the long term," Milne said. Exports offer perhaps the best opportunity for corn-ethanol growth. He said it is most likely any market growth will come through exports to the Philippines, Asia and South America.
Milne said he believes oil prices have yet to reach bottom. The price of West Texas Intermediary crude oil closed at $53.61 a barrel on Dec. 29, after peaking at just above $100 midway through the year. Generally speaking, higher oil prices are good for ethanol demand. Even as those prices fall, the RFS will help the ethanol industry weather the storm, he said.
EPA's delay in issuing the 2014 RFS volumes was based on concerns about whether gasoline retailers had the infrastructure to accommodate expanding ethanol beyond the blend wall. Milne said though the ethanol industry is working to expand the E15 market, progress will continue to be slow.
"I don't envision higher blends generating a sizeable increase in volume over the next couple of years," Milne said. "I think E15 will remain minimal, while E85 and other higher blends for flex-fuel vehicles only, will struggle to grow because of unfavorable economics against gasoline. E85 sales are dependent on a favorable price against gasoline."
2015 OUTLOOK
DTN Analyst Rick Kment said ethanol prices saw "significant pressure" through December after a strong October, November and early December. The strong prices were driven by a combination of grain harvest and strong demand for train service by the oil industry that challenged ethanol's move to market. It resulted in "aggressive buying" at coastal areas, Kment said, where higher demand for both export and domestic use created availability concerns.
With U.S. ethanol production growing steadily through the last two months of 2014, he said, increased ethanol availability and falling gasoline prices caused ethanol prices to plummet by more than 70 cents per gallon. Ethanol prices are expected to hover between $1.50 and $1.60 per gallon on the futures market in early 2015.
Strong pressure in RBOB gasoline markets and the entire energy complex has created concerns about strong ethanol price support over the next year, Kment said. Gasoline prices have fallen by nearly $1.25 per gallon in the final quarter of 2014, with additional pressure developing at the end of the year.
Corn prices are expected to remain in the current range early in 2015, Kment said. That will stimulate strong ethanol production at current profit margins. "But the stable corn prices and lower ethanol prices are likely to erode margins further through the first quarter to half of 2015," he said.
Darrel Good, professor emeritus in the department of agricultural and consumer economics at the University of Illinois at Urbana-Champaign, said in a Dec. 29 analysis that corn prices are expected to rise in 2015.
"The record 2014 crop and lower prices are expected to result in only a small increase in total consumption during the 2014-15 marketing year," he said in the analysis. "Early expectations were for year-ending stocks to be at a 10-year high of 2 billion bushels. Some reduction in U.S corn acreage in 2015, coupled with a return to a trend yield, would result in a much smaller crop and a reduction in stocks during the 2015-16 marketing year.
"After averaging close to $3.50 during the 2014-15 marketing year, corn prices are expected to rebound to the low- to mid-$4 level next year if production declines as expected."
HYPOTHETICAL PLANT
DTN's hypothetical ethanol plant [the Neeley Biofuels plant] model showed net profits of about 14 cents per gallon on Dec. 29. This is a 74-cent drop in profitability from late November when even lower corn prices and tight supply of ethanol led to aggressive margins.
Near the end of 2014, the EPA announced it would release RFS volumes for 2014, 2015 and 2016 -- all in 2015. Kment said ethanol prices likely will remain sensitive to expected EPA announcements on the RFS.
"Currently, most producers and blenders need to move forward as if the future moves are similar to present situations when concerning blending regulations," he said. "But the ethanol market will likely become more susceptible to announcements, or expected announcements by the EPA, which could heavily influence short-term price shifts in the market."
While the RFS grabs all the headlines, Kment said ongoing transportation difficulties could press the ethanol market.
"Two strong spikes in prices, one in early spring and one in late fall, were both driven by concerns of getting ethanol to end-user locations based on congestion of the rail system and inability to move trains in a timely manner," he said. "This has the potential to be a major factor through the upcoming year, and could create significant price volatility at that time."
Todd Neeley can be reached at todd.neeley@dtn.com
I likely won't be buying until i see a bottoming of oil prices and also the prospect that ethanol price will be higher and (because of that and most importantly) REX's crush spread once again becoming deeply profitable. As part of all this, I want to see if gasoline consumption is in fact going up significantly on these cheap prices, which will bring ethanol demand up (b/c of the 10% blend law). The Brazil import demand for our ethanol will also be a factor. If even higher DDGs prices are coming b/c of China buying again, that certainly helps, but it's mainly that corn cost / ethanol selling price spread i'm interested in.
Value1008; I've been following your posts as usual, and I was wondering when you have thought of rebuying REX again? These low 50's seems appealing!
At these low spot prices exports should be strong.
Let us know when you think it opportune to re enter. I hope by 2H. Perhaps still Mid 50s with positive momentum and sentiment changes by then.
It's unclear whether this was written by Mary Kennedy or Rick Kment-- the byline says Kennedy but the email at the end is Kment's.
DTN Daily Ethanol Comments
Ethanol Futures Tumble Lower on Weak Corn Market
Mary Kennedy DTN Basis Analyst
29 minutes ago
Ethanol futures continue to show steep price declines as traders are focusing on the lack of support through the corn market as well as indication of growing ethanol production over the last year and growing supplies. The general tone of the market is catching up to the bearishness seen in the energy complex as traders are looking for ample corn available through most of 2015 to produce needed ethanol. February futures posted a 4.4-cent-per-gallon loss, closing at $1.412 a gallon. All nearby contracts fell 4 cents per gallon after the sharp double-digit loss in the corn complex in the last half of the session.
RBOB gasoline futures slipped fractionally following light pressure in the crude oil market as well as the inability for financial markets to finish well after a strong early rally. Front-month February futures posted a 0.6-cent-per-gallon loss, moving the closing price to $1.2685 a gallon. The inability to actively draw additional buyers back into the market and the focus on growing supplies is creating additional potential for market weakness over the near future.
Crude oil futures slipped slightly lower as the lack of support in financial markets seemed to limit overall trade activity in the complex. The focus through the market seems to be on trying to find footing by traders, although the lack of support in global economics and uncertainty as to when or how the market will turn around will likely keep many traders on the sidelines. February futures have moved to $45.89 per barrel after an 18-cent-per-barrel loss. Slightly more aggressive losses were seen in deferred contracts as prices fell 25 to 35 cents per barrel.
Spot ethanol prices continue to show active pressure as traders are now starting to focus more on the lack of support in the underlying market and growing supplies rather than potential short-term demand issues. Prices fell 4 to 11 cents per gallon, although most regional hub locations posted losses of 8 to 10 cents per gallon. If corn and ethanol futures prices continue to remain soft through the next couple of weeks, it is going to be extremely hard to rally spot market prices no matter if demand for ethanol does start to slowly increase.
Ethanol rack prices followed the rest of the market lower as prices fell 3.37 cents per gallon across the nation Tuesday. There is growing uncertainty about what it would take to stabilize the current ethanol or energy market as prices seem to be moving steadily and systematically lower while at the same time supplies continue to build. The national average price moved to $1.7775 a gallon. This continued shift lower may continue to develop as there is very little support developing in either the ethanol futures or spot markets.
Ethanol plant profitability increased slightly based on double-digit pressure in corn prices. Even though ethanol prices continue to erode, the lower cost of production coming from corn costs is allowing for some short-term stability in margins. Neeley Biofuels posted a net gain of 10.4 cents per gallon. The hypothetical plant is used to measure how changes in commodity markets might affect actual plant margins.
Rick Kment can be reached at rick.kment@dtn.com
Chicago Argo ethanol assessment hits lowest level since June 2005
Houston (Platts)--13Jan2015/510 pm EST/2210 GMT
The Chicago Argo ethanol assessment tumbled to its lowest level in more than nine years Tuesday as swelling supplies and a bleak energy complex continued to put pressure on prices.
The assessment fell 4.5 cents to $1.37/gallon, the lowest level since it was at $1.3450/gal in June 2005.
"It is all getting smoked," one ethanol trader said. "It ain't pretty."
In the Platts Market On Close assessment, 25,000 barrels of Chicago Argo ethanol for January 18-28 delivery changed hands, with three trades at $1.37/gal.
After rising 98 cents, or 53.85%, in November, the Argo assessment tumbled in December, shedding $1.17/gal, or 41.79%, from a seven-month high of $2.80/gal hit November 26.
The assessment already shed another 23 cents since the start of 2015.
US ethanol prices have been pressuring lower for weeks as production maintained record highs throughout December, according to US Energy Information Administration data. US ethanol production for the week ended January 2 fell from a record high for a second straight week, shedding 23,000 b/d to 949,000 b/d, Energy Information Administration data showed Wednesday.
But despite lower production, stockpiles soared 751,000 barrels to 18.845 million barrels, the highest level since March 2013.
The plunging returns in the spot market has put serious pressure on producer margins.
The estimated production margin for a typical US Midwest dry-mill ethanol plant for the week ended Friday fell 10.8 cents, or 21.05%, to an 18-month low of 40.53 cents/gal, according to a review of US Department of Agriculture and Platts data.
--Jordan Godwin, jordan.godwin@platts.com --Edited by Valarie Jackson, valarie.jackson@platts.com
If this low-ethanol-price environment goes on for more than a few months, REX may be able to use some of its cash to buy a higher percentage of some of the plants in which it has ownership... i.e., a seller may emerge.
Yes, its a great source...thanks. Here is todays blog.....more negative news unfortunately as supplies build and prices drop....can this go on all year....anyone's guess. :
"Chicago Spot Ethanol Sinks to Six-Year Low on Building Supply
Spot ethanol prices eased again Tuesday, with Chicago area prices posting six-year lows amid rising supply while demand remains weak. Traders await Wednesday's release of U.S. weekly ethanol supply report that's expected to show another build in domestic ethanol inventories for the week-ended Jan. 9.
Prompt delivered ethanol at Argo was talked at a $1.39 to $1.42 per gallon bid/ask, down 1.0 cent. Chicago Rule 11 traded at $1.42 per gallon, down 1.5 cents. Pacific Northwest prompt ethanol traded at $1.46 per gallon, down 9.5 cents."
George Orwel can be reached at george.orwel@telventdtn
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Mailing Address: | REX |
7720 Paragon Road | |
Dayton, Ohio, USA 45459 | |
Operator & Voice Mail: | (937) 276-3931 |
Fax: | (937) 276-8643 |
Email: | Investors@Rexamerican.com |
REX American Resources Corporation is traded on the NYSE under the symbol REX. Investors can receive a hard copy of the annual report by written request to: REX American Resources Corporation Attn: Chief Financial Officer 7720 Paragon Road Dayton, Ohio 45459. |
In fiscal 2009 REX completed its transformation out of retail as we closed our remaining retail locations. We continue working on monetizing our remaining real estate assets. Recognizing the Company's transition primarily into alternative energy, on June 10, 2010, we changed the Company's name to: ![]() | ||
as it more closely reflects the Company's focus today. In conjunction with the name change we changed our stock symbol to "REX." We think these changes will help build awareness and recognition for our company within the investment community, as well as facilitate the number of relevant investment opportunities that are brought to us. Ethanol Ownership/Effective Annual Gallons Shipped as of January 31, 2014 As summarized in the table below, REX has ownership interests/effective annual gallons shipped of approximately 262 million gallons of ethanol. ![]() | ||
Alternative Energy/Ethanol Investments One Earth Energy, LLC REX has a 74% ownership interest in One Earth Energy, LLC, which has completed construction of, and now operates an ethanol production facility in Gibson City, Illinois. The facility has a design capacity of 100 million gallons of ethanol and 320,000 tons of dried distiller grains per year. The plant commenced operation in July, 2009. We consolidate their results into our financial statements. NuGen Energy, LLC REX currently has a 99% ownership interest in NuGen Energy, LLC. We acquired our initial 48% on June 30, 2010 and an additional 50% on November 1, 2011. The facility has a design capacity of 100 million gallons of ethanol and 320,000 tons of dried distiller grains per year. The plant initially commenced production in February, 2008. We consolidate their results into our financial statements, effective November 1, 2011. Patriot Holdings, LLC REX has a 27% ownership interest in Patriot Holdings, LLC. The facility located in Annawan, Illinois has a design capacity of 100 million gallons of ethanol and 320,000 tons of dried distiller grains per year. The plant commenced operation in September, 2008. Big River Resources, LLC REX has a 10% ownership interest in Big River Resources, LLC, a holding company for the following ethanol production entities in Iowa, Illinois and Wisconsin: Big River Resources West Burlington, LLC("West Burlington"). West Burlington operates a 100% owned ethanol production facility in West Burlington, Iowa, that has a design capacity of 92 million gallons of ethanol and approximately 300,000 tons of dried distiller grains per year. The facility has been in operation since 2004. REX's ownership interest in the plant is 10% via its ownership in the parent, Big River Resources. Big River Resources Galva, LLC("Galva"). Big River Resources operates a 100% owned ethanol production facility in Galva, Illinois, that has a design capacity of 100 million gallons of ethanol and approximately 320,000 tons of dried distiller grains per year. The facility has been in operation since May 2009. REX's ownership interest in the plant is 10% via its ownership in the parent, Big River Resources. Big River United Energy, LLC("Dyersville"). Big River acquired a 50.5% interest in this plant in August, 2009. Dyersville operates an ethanol facility in Dyersville, Iowa, that has a design capacity of 100 million gallons of ethanol and 320,000 tons of dried distiller grains per year. REX's ownership in the plant is 5% via its ownership in the parent, Big River Resources. Big River Resourcses Boyceville, LLC("Boyceville"). Big River acquired a 100% interest in this plant in December, 2011. Boyceville operates an ethanol facility in Boyceville, Wisconsin, that has a design capacity of 55 million gallons of ethanol and 176,000 tons of dried distiller grains per year. REX's ownership in the plant is 10% via its ownership in the parent, Big River Resources. Big River also operates five agricultural elevators with a storage capacity of approximately 10 million bushels. Net Cash and Real Estate Assets As of January 31, 2014, REX had approximately $63 million of cash at the parent company as well as legacy retail real estate assets (11 stores) with an approximate carrying value of $5 million. The company's intention is to monetize its real estate assets via leases and property sales, as market conditions allow. | ||
SEC Link to REX online filings Corporate Governance Annual Reports |
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