Ethanol prices rallied Friday as traders quickly backed away from the market enough to focus on the "forest", rather than becoming so consumed and distracted by the "trees".
This allowed active buyer support to be seen in all nearby contracts. October futures posted the most significant support of 1.5 cents per gallon developing. There was even more additional price support in late-day trade following settlement levels, which indicates further support may develop early next week.
The renewed buyer activity pushed prices to $1.537 a gallon. This is an 18-cent premium over the RBOB gasoline market which has had a hard time finding secure and lasting footholds over the last several weeks. The late-week focus through the ethanol complex moves trader's attention back to Wednesday's EIA report, which posted a moderate drop in weekly inventory levels.
More importantly, this report posted that inventory levels have fallen below year-ago levels for the first time this summer. It is important to remember that earlier in the year, ethanol stocks were running nearly 30% over levels from a year prior. To create such a strong shift in the market, while at the same time ethanol production is outpacing year-ago levels, points directly to demand growth. This demand growth is seen in domestic and export markets, and may be the thing that helps to bring long-term stability into the complex. As a side note: on Friday, when ethanol futures moved higher, moderate pressure developed in corn futures, and crude oil futures fell more than $2 per barrel.
Rick Kment can be reached at firstname.lastname@example.org
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