Even though the ethanol market price continues to track closer to the corn market than any movement in the energy market, it is important not to overlook what is going on in gasoline markets and overall demand trends.
The ethanol future price jumped 1 cent higher following higher corn prices, but most of the excitement in the market was seen, and mostly overlooked, in the weekly release of the EIA reports.
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Although the report also announced that at the end of last week ethanol production and inventory levels slipped, what may be more important in the short and long term is the inventory levels and implied demand for gasoline in the first week of January.
Implied demand, which is measured by the amount of gasoline supplied to the market, fell well below both year-ago levels and significantly below the five-year average levels with 8.01 million barrels of gasoline supplies per day. The five-year average is at 8.8 million barrels per day. This is roughly 33.5 million gallons per day reduction from the five-year average.
Inventory levels are also well above both year-ago and the five-year average levels. Because the majority of ethanol sold in the country is sold as a 10% blend to gasoline, a significant fall in gasoline demand also limits the amount of ethanol able to be sold.
This is one of the challenges seen in the ethanol industry through 2012, and it appears that the situation is getting even more bearish through the first week of 2013.
Rick Kment can be reached at firstname.lastname@example.org
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