Barron\'s - April 6 2020

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M6 BARRON’S April 6, 2020


prices near record lows, with prices in


Chicago at 84 cents a gallon on April 3,


down nearly 34% from $1.2625 a gallon at


the end of February, according to Denton


Cinquegrana, chief oil analyst at OPIS by


IHS Markit.


Retail gasoline sales are down 50% ver-


sus last year, based on figures from gaso-


line stations throughout the nation, says


Cinquegrana.


The demand loss for gasoline comes


despite the lowest retail prices for the fuel


since 2016. The average domestic price for


regular gas was at $1.912 a gallon on April


3, according to GasBuddy.


Demand for ethanol tracksalong with


gasoline, but “we’re in unusual territory


right now” as ethanol is adding to the cost


of gasoline instead of reducing the cost as


it typically does, says Patrick De Haan,


head of petroleum analysis at GasBuddy.


Reformulated gasoline futures were at


69.16 cents a gallon on April 3.


“Since 10% of most gasoline is ethanol,


we usually see ethanol bring a lower gaso-


line price, not a higher one as we do right


now,” De Haan says. “The higher price


now may add a few cents per gallon to


gasoline,” so stations are likely blending as


little as possible to meet the Renewable


Fuel Standard requirements.


That, in turn, is “hurting ethanol pro-


ducers acutely now. Some distilleries that


produce ethanol have shut down com-


pletely,” De Haan says.


That worsens the outlook for corn de-


mand. In the short term, there’s talk of $3


a bushel corn prices, Gilbertie says.


Corn below $3 would be the lowest


since the Renewable Fuels Standard fed-


eral program was expanded in 2007, he


says. The program requires that U.S.


transportation fuel contain a minimum


amount of renewable fuels.


Below that amount, corn “would be


deeply under its cost of production, put-


ting future production at risk and making


any corn price near [$3] unsustainable for


very long,” says Gilbertie.B


COMMODITIES


Corn Prices Are Battered


By Ethanol’s Troubles


C


orn prices could drop to their
lowest levels in more than a

decade as coronavirus-related


weakness in demand for gaso-


line pushes the cost of ethanol toward re-


cord lows.


The decline in gasoline demand due to


the widespread Covid-19 travel and work


restrictions, especially in the U.S., deeply


“affects the king of the ag markets—corn,”


says Sal Gilbertie, president and chief in-


vestment officer at Teucrium Trading.


U.S. motor gasoline demand was at


roughly 6.7 million barrels for the week


ended March 27, down 25% from just a


week earlier, according to the Energy In-


formation Administration. Most gasoline


has 10% ethanol content, and ethanol is


commonly made from corn.


Corn futures settled at $3.30 3/4 a


bushel in Chicago on April 3—the lowest


since September 2016 and down nearly


15% year to date.


U.S. ethanol use may see an estimated


total decline of 741 million gallons in the


March through May period, which would


result in a reduction of 256 million bushels


in corn ethanol use, according to a report


from economists at the University of Illi-


nois posted on the university’s daily farm-


doc website.


Adding to the concerns of excess sup-


plies, the U.S. Department of Agriculture


estimates total U.S. corn planted acreage at


97 million acres in 2020, up 8% from last


year.


“The ethanol story has deteriorated


rapidly” since the USDA’s Agricultural


Outlook Forum on Feb. 20-21, says John


Payne, senior futures and options broker


with Daniels Trading.


Even if actual corn acreage were down


by 10 million from the official estimate,


that would likely not be enough to keep


corn prices higher, he says.


The largest use of U.S. corn, roughly


40%, is for ethanol production. Ethanol


By Myra P. Saefong


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