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T2 ethanol margins at over 3-year low as wheat prices rally

London — European ethanol producers are facing the worst margins against EU wheat in more than three years, as the low ethanol pricing environment becomes more acute under the pressure of rising feedstock prices.

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Euronext milling wheat futures climbed Eur6 on the week to Eur176.50/mt ($208/mt) Monday, sending the theoretical ethanol crush spread against wheat to minus Eur41.30/mt.

This has been driven by dry weather conditions impacting the yield expectations for the new wheat crop in Northwest Europe.

For corn-based ethanol producers, the situation is not as bad but still unfavorable, with Euronext corn futures last settling at Eur168/mt, Eur2 higher on the week, which is in the upper range of prices observed over the course of the year.



However, this is also linked with the stage of the crop cycle, reflecting the end of the old crop for corn, leaving the theoretical crush spread against corn at minus Eur18.35/mt.

Rising raw material costs have only aggravated an already challenging situation for European producers, as they have been facing historically low ethanol prices for the best part of the last three months, and not much better even since Q4 last year.

High production levels since Q4 and a build-up of stocks throughout Q1 have been weighing on the market, especially since the last sugar-beet crop, which saw a considerable amount of additional ethanol volumes added to domestic supply balances.

Latin American cargoes have also added to the volumes piling up in the Amsterdam-Rotterdam-Antwerp area and despite healthy levels of demand, there has simply been too much product for the European market to absorb when all domestic capacity is still running.

Despite the dire margin situation, European producers have appeared more resilient than expected, with no major shutdowns reported so far, except for some only slightly longer seasonal maintenance turnarounds.

The exceptionally high margins of the year before may have provided some cushioning for producers this year, as have strong DDGS prices, but this rate of production is unlikely to be sustainable in the current environment.

--Chrysa Glystra, chrysa.glystra@spglobal.com
--Edited by Alisdair Bowles, alisdair.bowles@spglobal.com