Strong US ethanol prices have begun dissuading international buyers after a record start to the year, sources said Monday.
"There's some tire kicking and some stuff getting done, but overall [it is] pretty quiet," said one source.
US ethanol prices have been high compared with levels in the countries that have been doing a good deal of the buying for much of the year, especially Brazil and India.
S&P Global Platts assessed the front-month Chicago ethanol swap at $1.53/gal Monday, down 75 points compared with Friday. The front-month swap was assessed at $1.48/gal on June 28.
Platts assessed FOB Santos, Brazil, ethanol at $1.9230/gal Monday. Though higher than US prices, that difference narrows rapidly when accounting for freight and taxes. Most imports into Brazil flow into the North-Northeast region rather than Santos in the key Center-South production region.
India has also stopped looking at US imports, according to another source. The Chicago ethanol swap would need to be about 10 cents lower to encourage buyers from India, the second source said.
Though softer on Monday, US ethanol prices have found support in recent weeks from surging corn futures.
Weather worries and bullish US Department of Agriculture reports pushed the front-month CBOT corn futures contract near $4/bushel last week before it plunged.
But ongoing concerns about hot, dry weather in the US Corn Belt have provided support for the contract. The CBOT September corn futures contract settled at $3.75/bu Monday, down 1.25 cents.
"Ethanol is definitely being led by corn here. If corn drops hard, we'll see ethanol move lower," the source added. "Will that spur more export demand though? Hard to say. It depends on the extent of the move."
The US exported 1.9 billion liters or 593.7 million gallons of ethanol in the first five months of 2017, according to USDA data. The volume shipped so far this year is a record for the first five months of any year.
The largest buyer of US ethanol so far in 2017 has been Brazil, but uncertainty around a proposed tariff in that country has also trimmed some US exports.
Producers in Brazil asked the government to increase the tariff on ethanol imports to try to stem the flow from the US. A vote on the tariff was delayed until late July.
"The price curve for ethanol in Brazil is not helping," said another source.
"The curve is in steep backwardation, making it less desirable to import ethanol from the" US Gulf Coast, the source said.
Though the Brazilian market is backwardated, the US market remains in a slight contango from July through September.
