U.S. gasoline prices have increased 53 percent since last year but ethanol use has only decreased three percent
Stratospheric gasoline prices don’t appear to be having a huge impact on ethanol demand, which is a good thing for grain prices, says an analyst.
Regular gasoline prices averaged US$4.77 per gallon in the United States on July 4, according to the U.S. Energy Information Administration.
That is up 53 percent over the same time last year.
As a result, gasoline use has been on a steady, albeit slow, decline over the past 16 weeks, said Rich Nelson, chief strategist of Allendale Inc.
Use is down 6.6 percent over that period compared to the same time frame in 2019, which was the last normal non-COVID driving season. Ethanol use is down only three percent by comparison.
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Ethanol prices haven’t risen as much as gasoline prices, which is why consumption of the fuel hasn’t fallen as much.
Nelson said the statistics show gasoline/ethanol consumption is fairly inelastic because it is not cratering despite sky-high prices. People still need to get to work.
“It shows that most of the general public does not have the ability to cut back on that usage,” he said.
Nelson believes the U.S. Department of Agriculture will have to reduce its 2021-22 corn-for-ethanol number in its next supply and demand report scheduled for release July 12.
The USDA is currently using 2019 levels of corn-for-ethanol consumption of 5.375 billion bushels.
However, actual consumption has been 55 million bu. below 2019 levels in April, May and June and there is still evidence of consumer pushback in early July.
The USDA is forecasting 1.485 billion bu. of corn carryout in 2021-22. Nelson thinks it will be closer to 1.511 billion bu.
“That really implies a $5.70 to $5.80 (per bu.) December corn price,” he said.
The market closed at $5.96 on July 7.
“We’ve already priced this in,” said Nelson.
The corn market underwent a drastic correction in the last half of June, falling about $1.50 per bu. based on lacklustre exports, falling ethanol consumption and an improved weather outlook.
He believes the correction was valid because old crop stocks would need to be below one billion bu. to support prices in the $7 range.
However, the market lost all of its summer weather premium during that downturn.
Nelson believes there is still a weather threat because the crop was planted late and won’t be pollinating until late July or early August, when there may be some legitimate moisture concerns.
He thinks the corn market needs to add another 20 to 30 cents per bushel to account for the late-season weather risk.
