Ethanol Prices Surge in US Market on Higher Corn Prices and Recovering Overseas Demand

Ethanol prices in the North American market have increased in the week ending September 22 due to higher corn prices and better-than-expected Chinese economic data. Corn prices have increased in the largest exporting market of corn, the United States of America, to a 5-week high, reaching USD 480 per bushel on September 22. This jump has been due to a drop in total average corn production the following week and strengthened the Ethanol market.

Corn price uptrend has been further supported by recent wet weather patterns across western regions, which has resulted in a reduced US harvest. Record oil consumption and price surges have also supported the price hike of Ethanol. Ethanol prices on September 22 have been reported trading at USD 840 per metric tonne, FOB Texas, US.

Record rain across California’s largest population centers, especially southern California, has caused major flooding and widespread disruptions, further supporting Ethanol price hikes. Meanwhile, due to El Nino, parts of the Pacific Northwest have suffered extreme droughts and a record dry monsoon in August. Lower crop supply has affected the production volume of Ethanol. However, the US Department of Agriculture (USDA) has revised its outlook to a greater corn production primarily due to a record number of acreage planted this month. This is expected to ease the Ethanol market.

Data has witnessed a substantial recovery in the Chinese economy in recent weeks. According to World Economics’ sales data, China’s sales growth index has increased to a six-month high of 53.2 in September. In China, car sales have also registered a 2 percent growth in the last month, indicating higher Ethanol demand as biofuel.

According to USDA’s (US Department of Agriculture) weekly export sales report, 754 Kilo Metric Tons of corn were booked for export during the week ending September 7, indicating a strong downstream Ethanol market demand in September. Furthermore, the IEA’s updated forecast of solid demand if OPEC continued to cut its production, has raised the market sentiments globally.

The corn market outlook in the US corn belt for the fiscal year 2023-24 has been on focus. This year, a relatively large crop production ending with higher stocks has been projected. The spread between the harvesting season Dec 2023 and July 2024 contract prices is estimated to increase by 30 cents per bushel, higher than the gap seen during the growing season this year.

Furthermore, Research centers like the University of Missouri and the Food and Agricultural Policy Research Institute’s long-run projections of 2-billion-plus bushel corn stocks have projected that corn prices will return to their normal in the US in the next marketing year.