That 1-year extension was the most the U.S. ethanol industry could have hoped for and will be a big victory for the industry if it is signed into law. The ethanol tax measures, and other renewable energy support measures, were added to the bill to make it more palatable for House Democrats who rose up in a near mutiny last week against the Bush tax cut extension for joint filers earning over $250,000 per year.
The ethanol market this week will remain on edge, waiting to see if the 1-year extension of the full 45-cent credit is approved by the full Senate and House. Previous proposals involved reducing the credit to 36 cents. A 1-year extension of the tax credit would give Congress more time to fashion a revised regulatory approach to ethanol that involves expanding demand and nurturing cellulosic ethanol at a faster pace.
Ethanol Market Action -- Jan ethanol futures prices last week moved sideways above the recent 2-month low and closed the week up 0.2 cents (+0.1%) at $2.103 per gallon. Ethanol prices were supported by news that the Senate version of the tax agreement included an extension of the ethanol tax support measures, although the market took a wait and see approach to see whether the House will vote in favor of the tax package. Bearish factors included the 1.8% sell-off in gasoline prices and news that ethanol production rose to a record high.
Ethanol production reaches record high -- Last Wednesday's weekly DOE ethanol report showed that ethanol production in the week ended Dec 3 rose sharply by 6.1% to a new record high of 939,000 barrels per day. However, demand remained strong since ethanol inventories fell sharply by 4.2% to 16.384 million barrels, which was just 2.2% above the mid-October 1-year low.
Ethanol/Gasoline -- Jan gasoline futures prices last week consolidated below the previous week's 26-month high and closed the week down 4.28 cents (-1.8%) at $2.3093 per gallon. Gasoline prices last week ran into some long liquidation pressure, but saw continued support from the recent improvement in the global economic data and expectations for fuel demand. Jan ethanol prices last Friday closed at a 16.8 cent discount to Jan gasoline, which equates to a 62 cent discount including the 45-cent ethanol tax credit.
Ethanol/Corn -- March corn futures prices last week moved basically sideways and closed 0.75 cents higher (+0.1%) at $5.7425 per bushel. Downward pressure on corn prices from last week's 0.9% rally in the dollar index was offset by recent dry weather in South America and the tight U.S. corn supply situation. The March ethanol-corn crush margin last week rose by 2.3 cents to 9.0 cents/gallon. Including DDG, the March corn for ethanol crush margin rose by 2.3 cents to 45.7 cents/gallon.
Ethanol Calendar
Dec 15: EIA Weekly Petroleum Status Report
Dec 30: EIA Sep Monthly Ethanol Report
Dec 31: Ethanol tax benefits expire
Jan 12: USDA WASDE Crop Supply-Demand
Early to mid-Jan: EPA's E15 decision expected for 2001-06 model vehicles.
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