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NWE ethanol milling wheat crush margin at all-time high

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NWE ethanol milling wheat crush margin at all-time high

The indicative crush margin for T2 ethanol FOB Rotterdam using milling wheat feedstock rose Eur5.80/cu m to Eur150.73/cu m Tuesday, the highest value since Platts began tracking the relationship in January 2012.

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The prompt physical market remains supported by low supplies, said sources, but high cash margins come in sharp contrast to weaker ones further down the curve.

Ethanol crush margin calculations provide a rough indication of producer margins, taking into account both the price of ethanol and by-products such as dried distillers grains, which are sold as animal feed.

The cash price of ethanol in Rotterdam has been propped up by an ongoing lack of availability, said sources, after inventories were depleted throughout August, leading to the highest monthly average price since October 2013, at Eur582.10/cu m.


In the meantime, European grains markets have been falling and the September milling wheat contract has been under additional pressure as it is approaching expiry and grains traders are moving their positions to the next, December, contract.

The ethanol paper market is in a steep backwardation of Eur35/cu m between the first- and second-month futures, with forward months tracking movements on feedstock grains markets more closely and demand expected to come under seasonal pressure in coming months.

The December T2 ethanol future price was assessed at Eur482/cu m Tuesday, giving a crush margin versus December Milling Wheat of just Eur17.60/cu m.

Futures further along the curve are more related to the potential for producers to hedge production margins, making them more susceptible to movements on corn and wheat futures, compared with nearby months where production schedules are more locked in and fundamentals come to the fore.

Poorer forward margins have caused producers to lock in less forward production, say market sources, contributing towards a hand-to-mouth market which has not seen the front-month ethanol future fall below the second-month since early March.

Some take the view that weaker forward margins are necessary in order to prevent a restart of the currently idle Ensus plant in Hull, UK, since they believe that the addition of its material to the market would likely tip a still finely balanced market too far towards the long side and result in a collapse in prices.

--Sean Bartlett, sean.bartlett@platts.com
--Edited by Alisdair Bowles, alisdair.bowles@platts.com