Strong gains developed through the ethanol futures complex Tuesday afternoon following renewed buyer support in the corn market.
Front-month corn futures gained 3 cents per bushel Tuesday, and helped put more emphasis on the fact that production levels may continue to erode through the end of the year. More focus is being placed on individual production areas.
Ethanol futures posted the strongest gains of the month with front-month September futures rallying 2.5 cents per gallon. Even with recent gains seen through nearby ethanol contracts, it has been obvious the $1.50-per-gallon threshold has been extremely difficult to surpass in August. Even though late-July trade held over $1.50 per gallon, prices in August have been limited to sub-$1.50 levels; Tuesday's close is the closest the market has come to that price level, at $1.497 a gallon.
Even though corn prices are starting to climb higher, raising production costs of ethanol and the lack of underlying support in the RBOB gasoline market is making it very difficult for ethanol futures to justify a significant market gain without sacrificing demand. The discount ethanol futures are trading to the RBOB futures market is at the lowest level since February. This causes some concern for traders who are also focusing on demand slowdown as consumer driving is eroding along seasonal patterns.
If corn prices continue to climb higher during the next few days, ethanol prices will likely make the fractional price jump over $1.50 per gallon, but it appears that it will be a significant challenge to move prices much higher than this level, or to sustain prices over $1.50 during the next several weeks.
Rick Kment can be reached at firstname.lastname@example.org
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