Rail Congestion Raises Ethanol Prices

Rail Congestion Raises Ethanol Prices
Rail Congestion Raises Ethanol Prices

Even as the EPA debates on whether to cut the ethanol renewable fuels mandate for 2014, ethanol is running into another big problem – congestion on the railroads that has doubled the price over the last few months.

The problem has been severe winter conditions in the Midwest plus all the competition now coming from Bakken oil and Canadian crude seeking an outlet as the Keystone Pipeline continues to be delayed. This created competition and ethanol, with slimmer profit margins, is being squeezed out. The result has been delayed shipments and inventories piling up at ethanol refineries. A few have been forced into temporary shutdowns.

The graph shows the spot price of ethanol at three important terminals – New York, Chicago and the Gulf Coast. Chicago is traditionally the lowest price because it is closest to corn supplies in the Midwest. All three have now risen from below $2.50 to above $3.50 a gallon over the last month. The orange line represents a crucial figure – the RBOB (don’t ask what the letters stand for), which represents the price equivalent of gasoline. Ethanol prices have almost always been below gasoline prices, which is what makes it economical to put in cars. But the rail traffic has pushed ethanol above the spread, which means it is increasing the price at the pump. That isn’t likely to last long.

Industry officials say they expect the price of ethanol to drop again as conditions on Midwestern railroads clear up.

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