Ethanol's Short-Term Bottom

Seeking Alpha
by: Hard Assets Investor
October 29, 2008
By Brad Zigler

The plunge in corn and natural gas prices has firmed up domestic ethanol refining spreads to levels not seen since March. Plainly, we weren't scraping the deck back in May when we limned the corn-ethanol spread in "Are We At The Bottom Of The Ethanol Barrel?".

No, the bottom (if, indeed, it turns out that way), came at the commodity markets' summer zenith when corn prices shot up to the $6- and $7-a-bushel range, crushing the spread to a mere 23 cents before ancillary costs and returns.

Corn prices have since been nearly halved and the crush has widened to 89 cents a bushel. Not great, but certainly better than before. Lower commodity prices, though, have been both boon and bane for ethanol refiners. While lower input prices make ethanol manufacturing less costly, output prices have also cheapened, dragged down by the weakness in fossil fuel prices.

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