Steep backwardation in the US paper ethanol market could continue, sources said Tuesday.
"We are just getting started on maintenance and yet when production was at maximum a couple of weeks ago cash never felt heavy," one source said.
The front of the price curve has shown surprising strength in recent days, gaining despite losses in feedstock corn and high production.
That has kept the front-month Chicago ethanol swap at a commanding premium to its second-month counterpart.
S&P Global Platts assessed the October Chicago ethanol swap at a 5.25-cent premium to the November swap Tuesday, down from 5.5 cents Monday.
Much of the strength in the front of the curve came from a strong barge loading program out of Kinder Morgan's Argo, Illinois, terminal. The center of most ethanol trade in the US.
After Hurricane Irma assaulted the Southeastern US, the New York Harbor market also began to move product out by barge to Florida, sources said.
The increased demand bolstered prices.
But the back of the curve has also felt pressure from weaker exports and normal seasonal demand falling.
Brazil announced in August that it would raise its ethanol import tariff to 20% on volumes above 600 million liters in a year. As the US has already sent over a billion liters there so far in 2017, the tariff would apply to any further shipments.
That could lower exports, which have already been slow the past several weeks, according to sources.
And those market conditions could stick around. As maintenance brings output down in the coming weeks, the front of the curve could continue to find support while the back continues to feel pressure.
A structure above 5 cents is not unheard of for US ethanol, but much of 2017 has been spent with much smaller spreads. And when spreads are narrow liquidity can dry up.
So the wider difference between October and November was welcome to many traders and brokers who saw it as an opportunity, another source said.
"I think any time spreads move in general, and move out of a range, liquidity will come back," the source said. "A lot of traders are spreaders who get involved more when there is activity in the spreads."
