U.S. Ethanol Production Continues Despite Gasoline Price Drop

U.S. ethanol production is likely to continue at a record rate despite its rare premium to gasoline as cheap corn, high biofuel prices, and even cool weather provide ideal conditions and strong profit margins.

"There's no sign that says we should slow production. The mentality is that everyone is running," said Todd Becker, Chief Executive of Green Plains Inc, the fourth-largest U.S. ethanol producer behind Archer Daniels Midland Co, POET LLC, and Valero Energy Corp.

"The industry runs much better in the cold than the heat because we don't have to cool the plants down. This is the plants' sweet spot," Becker said.

The U.S. Energy Information Administration recently said ethanol production averaged 982,000 barrels per day in the week ending November 21, the largest volume in the dataset that started in 2010.

Production surged six percent from the same period last year as multi-month highs in ethanol futures resulted in the best profits for biofuel makers since summer.

Export demand for ethanol is booming, up more than 40 percent so far this year, helping to make ethanol more expensive than gasoline in some domestic markets. Meanwhile, costs to make ethanol have declined in the wake of a record-large U.S. harvest of corn, of which about a third is used for ethanol.

The ethanol trade group the Renewable Fuels Association pegs annual stated production capacity - or "nameplate" capacity - at about 14.9 billion gallons, or 354 million barrels. But many ethanol plants can produce above that and production could reach a peak of one million barrels per week, said Scott Irwin, Agricultural Economist at the University of Illinois at Urbana-Champaign.

However, ethanol futures are trading at a 30-cent premium to gasoline futures, the second-largest in the last five years. If that disparity persists, ethanol demand from fuel blenders could decline. Ethanol is less fuel efficient than gasoline but is cleaner-burning and higher-octane.

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