Backed Up Railroads are Driving Up the Price of Ethanol

by Henry Kaplan | Mar 17, 2014 |

A winter of particularly cold and ugly weather has backed up railroad traffic in the midwest, where the majority of ethanol is made in the US. Without rail access to refiners on the coasts, the ethanol is piling up in the Midwest and ethanol availability on the market is dwindling.

As a result, the price of ethanol for delivery has risen to $2.476 a gallon, a 40% increase from its low of $1.757 just a few weeks ago.

Meanwhile, US stockpiles of ethanol are shrinking at a time when they would normally be growing:

Inventories fell 700,000 barrels in the week ended March 7 to 15.9 million barrels, the lowest level for any week in March, according to EIA data going back to 2011.

Supplies usually build up in the winter ahead of the summer driving season, but instead stockpiles are at their lowest level since December.

The distribution problems have also affected production at ethanol plants. Without reliable transportation, the ethanol plants have slowed down:

The backlog in transportation is causing ethanol plants to slow production somewhat. According to EIA data, ethanol production averaged 869,000 barrels per day (36.50 million gallons), down 25,000 barrels from the previous week and the lowest in eight weeks.

Producers plan to ramp up to make up for it, and while they don't expect long-term ramifications, it may not be a fast fix.

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