Severe cold in US pushes ethanol, DDGS prices higher

New York — The arctic blast that tore through much of the US late this weekend pushed ethanol and its byproducts to sharply higher on Feb. 16 as the biofuels industry wrestled with the storm's impacts.

S&P Global Platts assessed benchmark Chicago Argo ethanol at $1.74/gal on Feb. 16, the highest level since reaching $1.8125 on Dec. 19, 2016.

Prices for Argo ethanol began rising on Feb. 12, when news of the approaching cold weather system sent natural gas prices through the roof. According to Platts, natural gas in the Midwest and South such as Kansas, Oklahoma and Eastern Arkansas were trading at $200 to $300/MMBtu.

Market sources told Platts that many ethanol producers, who have faced negative margins for much of 2020 and 2021, slashed ethanol production and opted to resell their natural gas supplies to take advantage of the higher prices.

The cut in demand, combined with higher corn futures, sent prices up 4.25 cents or more in most physical ethanol markets.

US dried distillers grains prices also moved higher, with the Platts assessment for CIF New Orleans DDGS barges reaching an all-time of $305/st on Feb. 16, the highest level since Platts first launched the assessment in April 2015.

Logistics affected

Values for US DDGS remain supported by the ongoing rally in the CBOT futures complex, but recent cold-weather challenges across much of the US have further boosted prices for the ethanol byproduct by adversely impacting logistics and production capacity. Traders cited delays in truck loadings and barge timings, as well as power outages and freezing equipment at ethanol plants throughout the Midwest and Mid-South.

A source from an ethanol producer on Feb. 16 noted that electricity outages have prohibited trucks from being loaded. A rail traffic has slowed as well due to the weather, which has seen temperatures drop below freezing in many places in the Midwest.

A spokesperson from Kinder Morgan said the company's Argo terminal in Chicago – the nation's largest ethanol trading hub – had not impacted by the weather.

However, another source said that barge traffic along the Illinois River has been impeded by the weather, and that rail delays could become more impacted as additional snowfall and extreme low temperatures continue.

One broker said it may take a little while for the effects of the storm to be fully felt.

"I imagine that as the day and week progresses, we'll hear more about logistics issues," he said.