Date: 08-Oct-09
Country: US
Author: Sam Nelson
 

CHICAGO - The U.S. ethanol industry is chalking up the best profits in months after suffering through 2008, with a bumper corn crop this year, relatively high energy prices and the possibility of exports bolstering the sector.

Corn is the foundation of the U.S. ethanol industry, and producers got a huge boost to their bottom line this year as corn prices were cut in half from the record high of $7.65 per bushel posted in the summer of 2008.

"Demand for ethanol is increasing and my guess is crude oil will go higher, which helps the case for ethanol. My guess on crude oil is to $80-$85 per barrel," said Jerry Gidel, analyst for North America Risk Management Inc.

The U.S. Department of Agriculture on Friday will release its October crop production report, and traders are expecting a mammoth corn crop of nearly 13.0 billion bushels. That's almost a billion bushels more than last year and just below the record crop of 13.1 billion produced in 2007.

Analysts don't expect the USDA to raise its current forecast for 4.2 billion bushels of corn earmarked for ethanol for the current 2009-10 marketing year, which is already well above the 3.675 billion bushels turned into ethanol last year.

However, the government might increase its outlook for the amount of corn used for ethanol in future reports.

"I don't know if they will increase the corn for ethanol in this report but eventually I think they will," said Tim Emslie, analyst for Country Hedging.

Analyst Joe Victor of Allendale Inc said ethanol plants have gone from negative margins in the six months to December 2008 to profits of 18 to 50 cents per bushel of corn this year in producing ethanol and distillers dried grain.

NYMEX crude is hovering at $70, about $10 up from the peak 2009 summer driving season or the July low. And CBOT ethanol on Wednesday was at roughly $1.80 per gallon, roughly 30 cents per gallon above the low in July.

MORE CORN TO MAKE ETHANOL?

Emslie said he was expecting the amount of corn to be used by the ethanol industry to reach 4.250 billion bushels in the current 2009/10 marketing year that began September 1.

"There will be good availability of corn so I think the pressure is to the upside on raising corn usage for ethanol," Emslie said.

Ethanol prices closely follow the trends of crude oil and gasoline prices.

"If we have $4.00 per gallon gasoline again, you can be certain ethanol demand will be going up and that will increase the demand for corn," said Chris Manns, analyst for Chicago Traders Group.

Average gasoline prices in the United States this week were $2.47 a gallon, according to the U.S. Energy Department [ID:nN05385895], down 14 cents per gallon from early July.

BUMPER CORN CROP

U.S. law requires a share of corn-based ethanol in the fuel market, reaching 10.5 billion gallons this year, 12.0 billion next year and a minimum 15 billion gallons a year in 2015 through 2022.

The big crop this year will guarantee ethanol makers an abundant supply of corn, and U.S. government mandates that ensure the future use of green fuels are expected to keep the ethanol industry humming.

Indeed, as the United States becomes awash with ethanol, it might become an exporter since the weak dollar is making prices competitive and soaring sugar prices crimp profits of Brazilian ethanol makers, who rely on a steady stream of sugar cane to make the biofuel.

"We are not seeing a robust export market for ethanol. I think we have upside potential but we have to wait and see if the EPA gives us some help," said Shawn McCambridge, analyst for Prudential Bache Commodities.

(Editing by Jim Marshall)