US ethanol crush margin at a 10-month low on high stocks, production


The US ethanol crush margin hovered near its lowest level in 10 months at 11.73 cents/gal Thursday after dipping to 9.94 cents/gal on Wednesday.

Argo, a benchmark for physical ethanol in the US, was heard trading for $1.42/gal Thursday morning, while the March CBOT corn futures contract was $3.6475/bushel.

The crush margin has not been this low since March 29, when it was 9.58 cents/gal.

Record high production has caused inventories to climb over the past several weeks. Output in the week ended January 20 averaged 1.051 million b/d, just 3,000 b/d lower than its all-time high set the previous week, US Energy Information Administration data showed.

Stocks responded to the high production, adding a total of 3.050 million barrels in the last three weeks.

The abundant production available in the market has pressured the price of ethanol. Buyers have little incentive to dive into the market when prices show little sign of slowing their precipitous fall.

Argo has lost over 28% of its value since it peaked at a two-year high of $1.9825/gal on December 13.

Though thin, the narrowing of the crush margin is largely a seasonal occurrence. Gasoline consumption reaches its annual low in January, reducing demand for ethanol.

The four-week average of finished gasoline supply fell to 8.261 million b/d, its lowest level since January 2014.

A simple crush margin can be calculated by dividing the cost of corn per bushel by 2.8, the number of gallons of ethanol that a bushel of corn can produce. The resulting number is the cost of corn per gallon of ethanol.


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