Ethanol is one of the three commodities whose prices have surged sharply in the last one month.
With prices rising 8.31 per cent last week, the commodity has gained 58.41 per cent in the last one month. Overall, ethanol prices have gone up nearly 34 per cent in the last 12 months.
Ethanol, derived from corn, is traded actively on the Chicago Board of Trade (CBOT).
In fact, food prices have tended to rule firm mainly due to use of agricultural produce such as corn for fuel purposes.
On the other hand, any rise in corn prices has its impact on ethanol. Part of the current surge in ethanol prices can be attributed to rise in corn rates.
Corn, whose prices plunged last year, has gained over eight per cent in the last one month and last week, it rose 4.5 per cent. Corn has been gaining on higher demand for the US produce and fears that shipments from Ukraine, a major source in the export market, could be affected. Concerns over the crop in Brazil and Argentina due to indifferent weather have aided the rally to nearly $5 a bushel last week.
On Monday, corn for delivery in May on CBOT ruled at $4.89 a bushel. Ethanol contracts for delivery in April on CBOT are up at $2.30 a gallon ( Rs. 37/litre). Spot prices for ethanol are hovering around $2.40 ( Rs. 37.75 a litre).
One reason for last week’s price surge was data showing that ethanol production in the US fell 1.2 per cent in the last week of February from 905,000 barrels the previous week.
Brazil picture
The upward movement in ethanol prices in the last one month is mainly due to prolonged dry weather in Brazil until mid-February. Though the dry areas received rains in the last week of February, it was seen as too late to save the sugarcane crop in the main growing areas.
Brazil exports about one billion gallons of ethanol every year. It accounts for 52 per cent of the total ethanol exports globally and makes up 47 per cent of US imports.
In Brazil, ethanol stocks are likely to decrease by 1.5 million barrels to 2.4 billion barrels by April 1. However, February-end stocks of 3.9 billion barrels were higher than 3.6 billion barrels during the same period a year ago.
Brazil’s sugarcane production could drop by 7 per cent due to the dry weather. This would result in processing of sugarcane slipping to 554 million tonnes in the current season that began this month against 596 million tonnes last season.
This will result in production of 32 million tonnes of sugar and 6.47 billion gallons of ethanol. Last season, sugar production was 34.2 million tonnes and that of ethanol was 6.73 billion gallons.
Rising shipments
The cold snap in North America, resulting in prices for all fuel sources soaring, projection of drop in stocks with rising exports since January and increased demand for fuel have also aided the rally.
Going by increasing ethanol exports since January, shipments from the US to Canada are likely to be higher. Canada accounts for 44 per cent of US ethanol exports, while 44 more countries also import US ethanol.
With imports into the US being nil, ethanol stocks are expected to drop one per cent to 17 million barrels by this month-end.
Increased demand for fuel in the US will result in petrol consumption rising to 134.8 billion gallons this year against earlier estimates of 133.2 billion gallons, according to the Energy Information Agency.
With Brazil expected to receive heavy rains this week, ethanol prices could begin to stabilise.