A Review of Current U.S. Ethanol Production and Price
By Sampath Jayasinghe
Decision Innovation Solutions
In this short article, we visit the current ethanol production rate from January to mid-November in 2018 and compare with the recent past. This analysis is an update from our August 2018 report.
U.S. ethanol production was at 1.042 million barrels per day for the week ending November 16, 2018, according to the most recent Weekly Ethanol Plant Production report from the Energy Information Administration (EIA). Figure 1 illustrates weekly production of fuel ethanol (thousand barrels per day on left Y-axis), and weekly ending stocks of fuel ethanol (thousand barrels on right Y-axis) from January 1, 2016 to November 16, 2018. Figure 2 depicts ethanol production by week number in the last five years, up to the week ending November 16, 2018. The average weekly production rate leading up to the week ending November 16, 2018 has been 1.046 million barrels, an increase of approximately 2 percent, compared to 1.027 million barrels during the same period in 2017.
The highest weekly production rate for the current year was recorded at 1.100 million barrels during the week ending August 3, 2018. This is the second highest recorded weekly production rate, next to the historical highest of 1.108 million barrels achieved during the week ending December 1, 2017. Ethanol production in September and October of this year has been nearly one percent above the same period last year, as seen in Figure 2.
The ending stocks of fuel ethanol were at 22.791 million barrels for the week ending November 16, 2018. The highest weekly ending stocks for the current year was recorded at 24.281 million barrels during the week ending March 9, 2018. The second highest weekly ending stocks for 2018 was 24.130 million barrels during the week ending October 12, 2018, as shown in Figure 1.
A continuance of lower crude oil and gasoline prices should put downward pressure on ethanol prices and plant production profitability margins. As of mid-November, the U.S. crude oil price tumbled to its lowest finish in over a year, resulting in a sharp decline in retail gasoline price. The United States, Russia and Saudi Arabia — the major three crude oil producers in the world — currently are producing crude oil at record levels. This has created significant high volumes of global supply surpassing the current global demand, causing the oil price to plummet.
Figure 3 shows the monthly average Iowa ethanol price (FOB) and December 2018 RBOB gasoline futures contract quotes provided by CME Group, Chicago, from January 2017 to November 2018. The average ethanol price in Iowa during November 2018 is at $1.27 per gallon, compared to $1.37 per gallon in November 2017. The highest Iowa ethanol price during 2018 is seen at $1.435 per gallon during April 2018. Since April and May 2018, the Iowa ethanol price has slipped down to the low $1.20 per gallon range, mainly due to the drastic decline in gasoline price. The average RBOB gasoline price has dropped to $1.60 per gallon in November 2018 from $2.18 per gallon in May 2018, a 27 percent decrease. In addition to the significant decline in gasoline price, a record high of ethanol ending stocks during October 2018 has caused the Iowa ethanol price to decrease, creating downward pressure on ethanol plant profitability.