Hurricanes, Ethanol Prices and Financial crisis – another factor in your tank

‘Everything counts in large amounts…’ – Depeche Mode

And in small amounts too. Do gasoline prices have you down? Well they have me down as well. But if you are reading this from the tri-state, be comforted by this fact. They are higher elsewhere.

I was up in Canada this week, up in Vancouver gas is at $6.00 per gallon. Really.

In any case, what of Ethanol? Well this magical booze made from corn and sugar may be affecting the price of you gas in a subtle way. For a few years now, many states have mandated Ethanol not as an alternative fuel, but as an oxygenating agent for gas, replacing MBTE (methyl butyl tertiary ether) as an additive.

Your high octane gas may be full of corn booze. So prices in Corn and Ethanol alike WILL affect, in some small way, prices of the gasoline that you pump into your tank.

Brazil’s CEPEA Index is at $0.5188 per liter for anhydrate ethanol, and $0.4389 for hydrate ethanol per liter, for January 2009 delivery. This is price at interior mill/refinery.

Prices on September 17 2008 are $0.558 per liter, or $2.114 per gallon. This is for Brazil SUGAR CANE Ethanol.

American Corn Ethanol is suffering, prices are doing strange things. Chicago Board of Trade Ethanol prices are $2.177/gallon. New York Mercantile Exchange prices – New York Harbor – are $2.25/gallon

Retail rack prices of Ethanol in Alabama were $2.8327/gallon on Wed. Sept. 17, but $3.8327/gallon on Tuesday. Meanwhile in Ohio prices are at $2.2900 per gallon on Sept. 17, down from $2.3100 the day before.

Now this is a decline, so why the problem? After all prices are going down.

One; corn price hedging is rising, and take the price of corn as it rises, added to the stupid ‘cash crunch’ and loss of market liquidity from the current financial crisis, and you can see how Ethanol Producers are affected.

Since most of them are in hock up to their elbows, a LOSS OF MARKET LIQUIDITY MEANS THEIR CREDIT LINES SHRINK, lenders become more conservative, they require increasingly solid collateral to advance credit and loans, this affects producer’s ability to maintain equipment, BUY CORN from local farmers, import corn from other states if necessary, and it shrinks their margins.

Moreover, with hurricane Ike some refineries are out of operation, either due to direct storm damage or POWER FAILURES due to damage to the electric power grid. Moreover NO ONE IS IMPORTING IN THE GULF OF MEXICO – a no-brainer, Chemical tankers can not berth safely with rampant storms.
An Analyst at DTN estimated that margins for Ethanol producers may dip to a negative 25 cents – this means that they are loosing money. $0.25 per gallon in the red.

Chicago board of Trade prices for Corn, per bushel, are $5.540 per September 17, a 22 cent increase. A reason for this increase is linked to the U.S. government bail-out of the sick Insurance Giant, AIG

Another key sign; on Wed. Stock shares of some US ethanol companies plunged.

WHAT DOES THIS MEAN?

Higher prices on Corn flakes and Soda Pop (and High Fructose Corn Syrup is bad for you anyway, it makes you fat. Avoid it at all costs. Eating a pound of sugar is better for you than a bunch of Cokes) and higher prices at the gas tank.

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