Friday, October 8, 2010

Low Corn Yields Drive Ethanol Futures to Highest Levels in Five Years

Ethanol futures soared the most in over than five years in Chicago after a government report estimated corn supplies will be lower than a prior forecast, signaling higher costs for plants that produce the biofuel.

Futures increased after the U.S. Agriculture Department estimated the domestic corn crop will drop 3.4 percent from last year, the second reduction to its projection in as many months.

Denatured ethanol for November delivery added 19.6 cents, or 9.9 percent, to settle at $2.184 a gallon on the Chicago Board of Trade, the highest price since Sept. 30, 2008. The percentage gain was the largest gain for one day since September 2005.

Corn production will total close to 12.664 billion bushels, lower than the 13.16 billion estimated a month ago and less than 2009’s record 13.11 billion, the U.S. Agriculture Department said.

Corn for December delivery reached the exchange limit 30 cents, or 6 percent, to $5.2825 a bushel in Chicago.

Advice is with ethanol at these prices, producers should acquire corn right away to lock in margins and hedge against corn prices soaring higher over the next few days.

Unpredictable corn prices and poor bets on the grain added to the bankruptcy of at least a dozen ethanol producers over a period of a year and a half, starting in October 2008.

Other major ethanol producers are Poet LLC, the largest U.S. ethanol maker, Archer Daniels Midland (NYSE:ADM) and Valero Energy Corp. (NYSE:VLO).