Summary
As I have discussed in previous notes, corn needs ethanol like ethanol needs corn.
Analysis
Our ethanol producer margin model does not include distiller grain sales or hedge positions however the data does support news that ethanol producer margins have been challenged in recent months. In July it was due to extremely inflated corn and natural gas prices. Recently however, it has been a different story. Corn and natural gas prices have fallen sharply since July but so have wholesale ethanol and crude oil prices. As I have discussed in previous notes, corn needs ethanol like ethanol needs corn. If ethanol producers are not profitable then corn will need to get to a level to make them profitable otherwise there could be a significant surge of available corn supplies on the market. Where will ethanol trend in the coming months? That likely depends on crude oil prices. And given the recent economic challenges, there is a lot of talk that crude could move 10-20% below current levels.
