Market and product

The US ethanol market, which stunned investors a week ago with record output data, maintained its knack for surprises by showing its biggest ever production collapse.

US ethanol production tumbled to 956,000 barrels per day last week, or 5.2%, from the record 1.08m barrels a day the week before, data from the Environmental Information Agency showed.

The decline, which matched the record drop in output recorded in August last year, was far bigger than anticipated by investors, with Chicago broker Futures International, for instance, forecasting a drop of 8,000-10,000 barrels per day.

At Linn Group, Jerrod Kitt told Agrimoney.com: "I was expecting it to be a 2% decline in production and was criticised for that by some people.

"The fall was definitely more than expected. I do not know of a single person calling for a 5% drop" in output of the biofuel, made in the US mainly from corn.

Abengoa effect?

But finding a reason for such a large decline was more tricky.

"Part of the reason may be that there was some unscheduled downtime, which I had thought had been accounted for the week before," Mr Kitt said.

There is some talk of the crisis at Abengoa, the Spanish-based energy group which began insolvency proceedings last week, having some knock-on effects on the US, where it operates six plants.

However, one trader said that Abengoa's US ethanol production capacity was 20,000 barrels per day, meaning that it could only have had a supporting role in the tumble in output.

'Ineptitude'

Instead, the trader blamed "EIA ineptitude" for the decline.

And at Futures International, Terry Reilly highlighted long-held beliefs of "inconsistency" in EIA data which prompted the broker to analyse the statistics in terms of a four-week average rather than reading too much into a single week's figures.

"It may be we are seeing a little bit more inconsistency than we have seen before," Mr Reilly said, adding that Wednesday's figure did not alter the broker's expectation of US corn use for ethanol of 5.3bn bushels in 2015-16.

Market impact

Indeed, while terming the data "slightly negative" for corn prices, he noted that the reaction in the corn market to the EIA data had been relatively modest.

Chicago corn futures for March stood at $3.71 a bushel an hour and a half after the data were released, down 0.5% from their level before the data were released.

"The market has not changed much, seems to be taking the data in its stride," he said.

Third time lucky?

As for next week's data, Mr Kitt said that, with margins nudged higher by some $0.03 a gallon by upgraded US ethanol mandate volumes released by officials on Monday, output would remain elevated by historical standards.

"I could see it levelling out at 970,000-980,000 barrels a day." he said.

One commentator said: "The EIA look like they got one figure far too high, and the next week's too low. Maybe they will get the next one right."