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Angus Productions Inc.
Copyright © 2013
Angus Productions Inc.

Ethanol Profitability Declines

CattleFax analysts provide overview of outlook for ethanol, oil and gas.

TAMPA, Fla. (Feb. 8, 2013) — Fuel demand remains soft, and prices should struggle to trade much higher than year-ago levels, said Chad Spearman and Mike Murphy, CattleFax analysts, at the 2013 CattleFax Market Outlook session at the Cattle Industry Convention and National Cattlemen’s Beef Association (NCBA) Trade Show in Tampa, Fla.


Inverted futures markets have resulted in rationing of corn for ethanol, Spearman said. There is a smaller demand for U.S. exports because of supply in South America and Ukraine. Production levels have dropped and the price incentive has left. Ethanol production has been rationed, but the use of it has not. U.S. refinery net ethanol inputs continue to run near year-ago levels.


Blenders will have to use ethanol stocks more aggressively, and the United States will have to be a net importer of ethanol to meet the Renewable Fuels Standard (RFS) mandated usage, said Spearman. Imports have jumped to the highest level since 2008. The United States can’t import enough to reach the mandate level to offset the lack of ethanol production.


The incentive for blenders to use ethanol will have to be displaced by the use of Renewable Identification Number (RIN) credits instead of physical ethanol, he explained.


U.S. gasoline prices are likely to trade in a seasonal manner, with a peak in the spring. Oil prices are up 116% since 2007, said Murphy. The global recession has reduced oil production, and 2012 has especially shown a sharp decline in usage.


Murphy mentioned that $3-$4 per gallon should be the expected trading range. There is a lot of consumer resistance at the $4 range, so market signals in usage should push it to the lower end of the range. This should serve as support to economic growth, as consumers won’t have to spend as much money on energy costs.


The market is telling producers to make more oil and less natural gas. Prices should improve in 2013.



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