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Floods Impacting Ethanol Industry, Pushing Gas to 5-Year Highs
USAgNet - 04/09/2019

The March floods that punished the U.S. Midwest have trapped barrels of ethanol in the country's interior, causing shortages of the biofuel and helping to boost gasoline prices in the western United States. The historic floods have dealt a series of blows to large swaths of an ethanol industry that was already struggling with high inventories and sluggish domestic demand growth.

According to Reuters the ethanol shortages are one factor pushing gasoline prices in Southern California, including Los Angeles, to the highest in the country, and they could top $4 a gallon for the first time since 2014, according to tracking firm GasBuddy.

Benchmark price for ethanol used in most supply contracts initially jumped on news of the floods but has been hobbled by rising waters around the Chicago hub that have halted barges and sales. That stands in contrast to prices on the coasts, which rose dramatically - drawing in heavy imports from Brazil, the main U.S. ethanol competitor.

The floods inflicted billions of dollars in damage to crops and homes in the U.S. Midwest, and knocked out roughly 13 percent of ethanol capacity.

U.S. ethanol is made from corn and required by the government to be blended into the country's fuel supply to reduce emissions.

While some ethanol plants were flooded, the primary effect of the rising waters was to shut rail lines that serve as the main arteries for corn and ethanol deliveries.

Ethanol prices on the coasts spiked due to shortages, but Midwest producers have been unable to take advantage because of washed-out rail lines, market sources told Reuters.

"Unfortunately for anyone who was impacted by logistics issues it was a double whammy. You couldn't capture the rally," said one trader.

At Chicago's Argo terminal, the nation's main ethanol pricing hub, the cash price for ethanol fell for an eighth straight session last week to $1.29 a gallon, the longest downward skid since April of last year, according to Oil Price Information Service, which does daily assessments.

Initially, fears of widespread plant outages boosted that benchmark, but plants proved more resilient than expected, continuing to produce despite logistical challenges.

U.S. ethanol inventories were at 24 million barrels for the week ended March 29, just off a record hit a week earlier, according to U.S. Energy Information Administration data.

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