Ethanol prices in the key Chicago market quickly backed away from their two-year highs Wednesday as the US Energy Information Administration released weekly data showing both production and stocks higher.
"Everyone is trying to jump out of the same window," said one source, referring to the rapid descent of the market as sellers offloaded positions.
The front-month Chicago ethanol swap traded as low as $1.6325/gal Wednesday morning after S&P Global Platts assessed it at $1.73/gal Tuesday. The swap was $1.62/gal on December 8, the day before ethanol prices rose at their fastest pace in two years.
Argo, a benchmark for physical US ethanol, was indicated as low as $1.87/gal Wednesday morning after Platts assessed it at $1.9825/gal Tuesday.
The plunge came after morning EIA data showed ethanol production rose to an all-time high of 1.040 million b/d and stocks added 546,000 barrels in the week ended December 9.
Both figures were well above what market participants expected. Production was not as much of a surprise given the robust crush margin available, thanks to cheap corn prices.
But the Chicago market had run up amid fears of tightness at Kinder Morgan's Chicago-area Argo terminal.
Robust export demand has encouraged US producers to make export-grade ethanol that they can sell at a premium.
As producers make export-grade ethanol and ship it abroad, they enter the market as buyers. They produce export-grade ethanol that goes directly to staging in the Gulf Coast or New York Harbor.
But to cover the obligations they already have, they buy Argo and send barges from the Chicago-area terminal to domestic refiners. The high number of barges booked out of Argo through the end of December led market participants to trade higher and higher, according to market sources.
The same source said the rally in ethanol prices was beyond where data was supporting prices.
"At times, some of these moves get overdone each way," he said.
