Agricultural conglomerate Archer Daniels Midland (ADM) revealed today that profits doubled in its most recent quarter, thanks in part to higher sales and higher profits for ethanol. But analysis by Oil Price Information Service (OPIS) suggests that big changes are in store for ethanol economics and sales.
OPIS notes that a quiet freefall has occurred in what was earlier a clearly overheated summer spot market for ethanol. The level at which the ongoing price plunge stabilizes may have a great impact on the course of wholesale and retail prices for the next 10 months. In a dramatic turnabout, ethanol may actually reduce finished gasoline prices this autumn and winter.
OPIS notes that spot ethanol prices, representing the value of fuel grade alcohol that bulk buyers and sellers negotiate, have dropped by nearly $3.00/gal in some markets in just six weeks. See chart. Example: if you needed to find northeastern ethanol to complete your reformulated gasoline mixture on the first day of summer, it cost $5.65/gal in places like Baltimore, New York, Philadelphia and Boston. Today, on the first day of August, those same areas see ethanol barely fetch $2.75/gal, thanks to the new production that Midwestern plants are now marketing.
Even lower prices could be in the cards for this winter. To find out how much lower and to read the entire story, please go here: http://www.opisnet.com/supply/headlines_pr.html.
How the relationship between refiners and ethanol producers proceed may determine whether the ethanol gold rush on Wall Street is appropriate. Two new companies made their debut as public companies in the second quarter, Brookings, SD-based VeraSun (VSE) and Pekin, Ill-based Aventine Renewable Energy (AVR). Many more companies will be offered to investors between now and next spring.
Oil Price Information Service (OPIS) is the most widely accepted fuel price benchmark for supply contracts and competitive positioning. It’s used as the benchmark price by the world to buy and sell U.S. gasoline, diesel, ethanol, biodiesel, LP-gas, jet fuel, crude, propane, feedstocks, resid, and kerosene.
Through its subsidiary, Axxis Software, it also provides leading-edge software solutions for petroleum marketers looking to automate price collection, data storage and repricing of dealer and commercial accounts. OPIS is a private, independent publication not associated with managing investments.
Source: Business Wire Aug. 01, 2006.