Ethanol Prices Explained
As you can see ethanol prices are fluctuating. But why is that? And is there a way to predict its price?
Why are ethanol prices fluctuating?
Ethanol prices are rising steadily thanks to the Biden administration mandate which advocates more bio-fuel blending into gasoline. However, this is not the only catch as other implied factors are behind this. Here are some:
1. Energy Prices
The rise of ethanol prices relies heavily on crude oil and energy prices.
Ethanol is a substitute source for gasoline. Thus, an increase in fuel prices will prompt people to purchase much lesser bio-fuel which ramp up the ethanol demand and price.
2. Corn Prices
Corn is the main raw material used in ethanol production. Therefore, any corn price movement will highly influence the price of ethanol.
3. Global Warming
Ethanol mainly comes from corn and the recent extreme drought and hurricanes that hammered the Midwest reduced corn production.
The U.S. drought in 2021 reduced 13% of Nebraska’s corn yield which reflected in the entire Midwest corn production. Thus, this drives the ethanol price in the market.
4. US Inflation
The U.S. inflation peaked at 9.1% in June 2022 driving almost all commodities to a sharp market increase including ethanol.
This spike is expected to continue until 2024.
5. Biden’s Administration
The rising fuel prices, increased foreign fuel dependency, and the current Russian-Ukraine war made the Biden administration turn to ethanol as a fuel alternative.
Thus, leading to lesser ethanol exports from the largest ethanol-producing country ( the U.S. ) to their counterparts.
Which variables impact the price of ethanol?
- Energy Prices
- Corn Prices
- Global Warming
- US Inflation
- Biden’s Administration
- Ethanol Production
- Transportation Costs
Where does ethanol come from?
Ethanol mainly comes from plants that have high amounts of sugar, starch, and cellulose. Other sources of ethanol are sugarcane, sugarbeets, barley, and wheat.
In the United States, corn is the most common source of ethanol. The ethanol production process involves converting the starch or sugar from the plant into glucose which is then fermented using yeast.
After distilling to remove the impurities from the mixture of water and ethanol, the final product is clear and pure ethanol which is ready to use as a gasoline substitute.
Ethanol production started with the development of industrial-scale distilleries in Europe and North America.
Additionally, its first large-scale production began in the early 20th century when petroleum-based fuel became more expensive. Furthermore, the Ford Motor Company launched Henry Ford Model T, an ethanol-powered vehicle in 1908 which spurred the demand for ethanol.
The practice of using ethanol-blended gasoline occurred in the 1920s and 1930s when fuel demand was high and tight due to WW2.
Today, the U.S. tops the largest ethanol-producing country in the world with an average of 500 million gallons of production per year. Brazil, China, Argentina, Canada, and Thailand follow closely.
What is the future price and season of ethanol?
Ethanol production is present all year round however, certain seasons record its peak production.
Generally, the corn harvest in the U.S. runs from late summer to fall. During this time ethanol production is plenty and prices are low as there is ample supply. However, the summer driving season from Memorial Day to Labor Day causes a short spike in price.
Furthermore, the Clean Air Act in the U.S. requires much tighter regulation to lessen smog and other air pollutants. This law takes effect every June 1st to September 15th.
Conversely, Brazil’s ethanol season coincides with its sugarcane harvest season which typically runs from April to November.
Overall, the price of ethanol comes after a number of factors such as the cost of its feedstocks (corn and sugarcane), the price of crude oil, and government policies.
According to the US Energy Information Administration (EIA), the average price of ethanol in the United States was $2.24 per gallon in 2022.
The EIA expects the price of ethanol to remain relatively stable in the coming years, averaging around $2.30 per gallon in 2030.