The front-month Chicago ethanol swap narrowed its discount to the physical Argo market Tuesday, gaining 1.3 cents in a single day after clawing back 4.25 cents since the beginning of November.
S&P Global Platts assessed the front-month Chicago ethanol swap at $1.5125/gal, while Argo was $1.5920/gal, a difference of 7.95 cents. The two markets were 12.2 cents apart on November 1.
The relative strength of the paper market came as physical markets were held back by fears of bearish production data.
"The market is starting to feel like we will have a big production number tomorrow," said one source.
Wednesday morning brings ethanol production and stock data from the Energy Information Administration. October saw producers in seasonal maintenance, keeping output under control. But producers have left turnarounds behind, and a profitable crush margin is likely to encourage plants to run as hard as possible.
More production means more product in the market. Though domestic and export demand have both been strong, too much product inevitably pressures prices.
Several large producers mentioned their hopes for a strong exports in the fourth quarter of 2016.
The US is already on pace to export the largest volume since 2011.
US sellers have sent 2.6 billion liters of ethanol abroad through September of this year.
But some sources have said that exports and domestic demand combined are only consuming 1 million b/d, on the generous side.
With producers making around 1.022 million b/d, as seen in the week ended October 28, or even higher, stocks will grow and smother the market.
The swap, meanwhile, followed bullish corn prices higher. The CBOT December corn futures contract rose 4.25 cents to settle at $3.4150/bushel.
"The corn futures really have gone nowhere over the last six months and I expect very little volatility for the rest of 2016," a market participant said, alluding to the lack of clear direction in the corn futures.
With the paper market less tied to the impending data, it chased feedstock corn higher as producers sought to lock in crush margins.
