The economics of ethanol priced significantly below gasoline have caused fuel blenders to increase their "discretionary" use of ethanol, according to the latest reports from Bloomberg News.
The business news service cites an increase of seven percent in ethanol blending into gasoline over the past four weeks, and explains that this continues a trend which has seen US ethanol consumption rise 46 percent above 12 months ago. Areas where ethanol blending is required to achieve clean air goals have been blending their required ethanol for some time, and some of the increase may come from incremental increase of fuel use in these areas, but most of the increase in ethanol blending appears to be in areas where blenders are choosing ethanol, for an economic benefit.
Including the 52-cent Federal blender's credit, ethanol was $1.02 cheaper to use than gasoline, based on contracts at the Chicago Board of Trade, Bloomberg reported. On September 26, CBOT saw its lowest ethanol price since July 2005, at $1.515 per gallon of ethanol for October delivery.
CBOT ethanol futures are on the rise now, reflecting a belief that blenders will continue to increase blending. The day after the 26-month low, October futures closed 3.4 cents per gallon higher than the day before. But they have a long way to go before they erode the entire spread, still hovering around a dollar.
"Whether the cheap price of ethanol translates to good news for the consumer is entirely in the hands of the blenders," said Jerry Larson, chairman of the Minnesota Corn Research & Promotion Council-an organization that helped lay the groundwork for farmer-owned ethanol production in the United States. "If the price of gasoline continues to rise, it will be because of a combination of oil commanding a price above $80 a barrel, and decisions by blenders to maximize their profit at the expense of consumers. We've always argued that one of the benefits of domestically produced energy should be that it is the more economical choice."
According to Renewable Fuels Association, there are currently 129 bio-refineries operating in the US, producing 6.84 billion gallons of ethanol. A total of 76 new plants are in some stage of development, along with nine major expansions of current plants, which would add another 6.5 billion gallons of ethanol production capacity. Of those more than 200 plants, 43 are locally-owned, and all of them support the price of agricultural production. Since ethanol demand increased corn prices above three dollars, the commodity program of the Farm Bill has not drawn on taxpayer funds to support farmers. Corn producers are making their living solely from the market.
RFA quoted a Sept. 21 report in the Wall Street Journal that states that consumers are benefiting from cheap ethanol: "Another reason for steady gasoline prices: the use of ethanol as an additive to gasoline is on the rise," reads the report from Wall Street Journal. "While crude prices have soared, ethanol prices have dropped as much as 30% in recent months and are likely to drop more, Eitan Bernstein, an analyst with Friedman, Billings, Ramsey & Co., said in a report yesterday. Ethanol costs more than 60 cents a gallon less than gasoline, and gasoline suppliers can offset some of the rise in crude oil prices by blending their gasoline with small amounts of the cheaper fuel."
Source: Minnesota Corn Growers Association