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Ethanol Producers Concerned Over Low Price


U.S. ethanol producers led by POET LLC have requested the Chicago Mercantile Exchange to change the pricing method for a swap contract used for hedging. The CME currently calculates the contract value by averaging the daily settlement price over a month in the physical market based on prices collated by Platts.

Traders are apparently reluctant to use the CME Chicago Ethanol Swap Contract as further declines will result in losses. Apparently ADM has embarked on a program of predatory pricing which has impacted ethanol refiners.

The market for ethanol has steady declined during the second half of 2018 after a peak of $1.60 per gallon in March down to a range of $1.23 to $1.28. The drop is attributed to lowered demand, cancellation of orders from China and competition from natural gas.

It is understood that a number of ethanol refiners have reduced throughput and mothballed plants. The only bright side of ethanol production is that cellulosic ethanol has not materialized in any volume despite billions of dollars invested in research and development and erection of dedicated plants.