Sustainable BusinessApril 8, 2019 / 7:07 AM / Updated an hour ago
Midwest floods hammer U.S. ethanol industry, push some gasoline prices toward five-year high
Jarrett Renshaw, Stephanie Kelly
5 Min Read
NEW YORK (Reuters) - The March floods that punished the U.S. Midwest have roiled the ethanol industry, hammering prices and trapping barrels in the country’s interior while the U.S. coasts suffer from shortages of the biofuel.
FILE PHOTO: A motel, restaurant and travel stop are shown surrounded by flood waters in this aerial photo in Percival, Iowa, U.S., March 29, 2019. REUTERS/Tom Polansek/File Photo
The historic March floods have dealt a series of blows to large swaths of an ethanol industry that was already struggling with high inventories and sluggish domestic demand growth. And the ethanol shortages are one factor pushing gasoline prices in Los Angeles and Southern California to the highest in the nation and they could top $4 a gallon for the first time since 2014, according to tracking firm GasBuddy.
Benchmark price for ethanol used in most supply contracts initially jumped on news of the floods but has been hobbled by rising waters around the Chicago hub that have halted barges and sales. That stands in contrast to prices on the coasts, which rose dramatically - drawing in heavy imports from Brazil, the main U.S. ethanol competitor.
The floods inflicted billions of dollars in damage to crops and homes in the U.S. Midwest, and knocked out roughly 13 percent of ethanol capacity.
U.S. ethanol is made from corn and required by the government to be blended into the nation’s fuel supply to reduce emissions.
While some ethanol plants were flooded, the primary effect of the rising waters was to shut rail lines that serve as the main arteries for corn and ethanol deliveries.
Ethanol prices on the coasts spiked due to shortages, but Midwest producers have been unable to take advantage because of washed-out rail lines, market sources told Reuters.
“Unfortunately for anyone who was impacted by logistics issues it was a double whammy. You couldn’t capture the rally,” said one trader.
At Chicago’s Argo terminal, the nation’s main ethanol pricing hub, the cash price for ethanol fell for an eighth straight session last week to $1.29 a gallon, the longest downward skid since April of last year, according to Oil Price Information Service, which does daily assessments.
Initially, fears of widespread plant outages boosted that benchmark, but plants proved more resilient than expected, continuing to produce despite logistical challenges.