Ethanol supplies grew at the end of last week based on slower demand and strong growth in ethanol production. Total production of ethanol grew 4.2% over last week's levels, which pushed output to a 14-week high.
Even with previous support in the corn market increasing overall production costs for plants, traders are looking at the large production as a very fast way to move out of the tight supply situation that the market has seen over the last two months.
Ethanol stock increased 1.4%, which is not significant in itself, but is eroding the concern about both short- and long-term market tightness. This now puts ethanol stocks 9.2% under year-ago levels, and a gap that can be easily made up over the coming weeks and months if production continues to grow.
Fundamentals themselves don't seem to justify the aggressive price tumble seen in futures markets, but given the aggressive buyer support over the last two weeks, the market was ripe for a price adjustment. April futures fell 31.7 cents per gallon, moving back to $3.20 a gallon. But all nearby contracts posted aggressive double-digit losses ranging from 11 to 30 cents per gallon. This will likely create additional volatility through the complex through the rest of the week, and may spark additional widespread price adjustments.
Rick Kment can be reached at firstname.lastname@example.org
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