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Ethanol ‘train wreck’ seen getting worse with record supply

February 11, 2016

Record stockpiles of ethanol are forcing some biofuels producers into the ranks of energy companies that are slowing operations in the face of $30-per-barrel crude oil.

Supplies of the fuel rose last week to a record 23 million barrels, the most in data going back to 2010. The glut threatens to drag prices down to the point where producers, facing rising feedstock costs, may need to start shutting down their plants, according to Marcus Ludtke, vice president of broker Commodity Marketing Company Inc.

Denatured ethanol for March delivery fell 1.4 percent on Wednesday to settle at $1.383 a gallon, weighed down by crude’s own slide. Plants will start closing if prices fall below $1.30 for a sustained period because corn costs remain high, Ludtke said. The threat of curtailments comes even as U.S. regulators work to increase biofuels’ share of the country’s fuel mix.

Distiller Southwest Iowa Renewable Energy LLC said Wednesday that it was “voluntarily slowing production” on poor returns.

“It’s a train wreck,” Ludtke said. “It’s going to get worse. It becomes a who-flinches-first thing. You’re waiting on someone else to dial back.”

Sioux Falls, South Dakota-based Poet LLC, the second-biggest U.S. ethanol producer after Archer Daniels Midland Co., halted corn receipts for later this month at plants in Indiana and Iowa, citing shutdowns and maintenance. Matt Merritt, a spokesman for Poet, said the company doesn’t discuss run rates, corn buying or market strategy.

The Poet slowdowns will mean reduced operating hours at Indiana plants in Alexandria, Cloverdale and Portland.

“You can’t continue to add 500,000 barrels a week into inventories,” said Chris Wilson, a broker at Atten Babler Risk Management in Galena, Illinois. “That’s just not going to work.”

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