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US ethanol margin remains negative over past week

Houston — The US ethanol crush margin continued to hover in negative territory over the last week, moving to minus 5.91 cents/gal Monday from minus 5.31 cents/gal on October 15, the last time the Platts Crush Margin Tracker was published.

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A surprise decline in output did little to support prices as high inventories continued to weigh on the benchmark Argo ethanol market.

S&P Global Platts assessed Argo at $1.2605/gal Monday, down from $1.29775/gal on October 15.

A weekly Energy Information Administration report released October 18 showed US ethanol production averaged 1.011 million b/d in the week that ended October 12, down 29,000 b/d week on week. Compared with the same week in 2017, production was 8,000 b/d, or 0.79%, lower.

Market participants were surprised by the lower production as seasonal maintenance had been largely finished and low feedstock prices had encouraged returns to higher output.

Issues with rail logistics delayed some loadings at plants, which one source said could appear in the EIA's survey as a plant not producing.

Monday Oct 15 Change
Crush -5.91 cents/gal -5.31 cents/gal -0.60 cents/gal
Argo $1.2605/gal $1.2605/gal -3.725 cents/gal
Corn $3.6950/bu $3.7825/bu -8.75 cent/bu

Total stocks added 109,000 barrels, focused on a build in the West Coast. It was the third consecutive weekly increase in storage levels. Inventories were 2.650 million barrels above the same week last year, the largest year-on-year build since early January. The weekly stock increase was within market expectations.

The West Coast added 188,000 barrels despite the EIA reporting no imports on the week. Several vessels landing in California in recent weeks have pushed inventories higher in the region and market participants in the state continue to balance demand with supply.

Midwest inventories were 74,000 barrels higher on the week for the second largest increase. The Midwest is host to the largest number of ethanol plants across all US regions. Delayed rail loadings at plants may have contributed to the stock build.

The East Coast rose by 61,000 barrels. With lower prices in California, New York Harbor has become more attractive for shippers. New York Harbor is the largest hub in the East Coast.

The Gulf Coast shed 201,000 barrels for the largest decrease. The Gulf Coast is the most common origin for ethanol exports from the US and low prices in recent weeks may have prompted increased buying interest from abroad.

The front-month corn futures contract settled at $3.6950/bushel Monday, down 8.75 cents/bushel from October 15.

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.

-- Joshua Pedrick, joshua.pedrick@spglobal.com

-- Edited by Derek Sands, newsdesk@spglobal.com