Ethanol futures continue to back off of seasonal summer highs over the last three weeks following what is expected to be slower demand over the second half of the summer and a sharp sell-off in the corn market.
Nearby ethanol futures are trading between $1.50 and $1.58 per gallon during the first week in July. This compares to prices above $1.70 per gallon at the middle of June.
It is typical that overall gasoline and ethanol demand will start to fade following the Fourth of July holiday, which corresponds with slower buyer support from consumers through the end of the summer and early fall.
Demand is expected to remain relatively firm, but following seasonal patterns, potentially pushing prices lower through the next several weeks. Corn prices over the last two months have continued to be the main focus of ethanol market. The aggressive price rally through May and first half of June pushed contracts to prices not seen since July 2015.
But the result of sharp pressure in grain markets and changing weather patterns has shed more than $1 per bushel off of the corn futures price, driving corn markets to contract lows. This pressure alone seen in the corn market accounts for a 35-cent-per-gallon cost difference in ethanol production.
It is likely that corn prices will continue to remain volatile as weather patterns may continue to change over the next several weeks due to pollination of corn through the Corn Belt. But noncommercial traders have also quickly backed away from commodity markets in the last two weeks, creating additional uncertainty through the market.
Rick Kment can be reached at firstname.lastname@example.org
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