Comments on: The Next Fuel Shoe To Drop?

By: Shoebox

Shoebox — Tue, 17 Jun 2008 21:57:11 +0000

The tax thing on ethanol gets real goofy because of the subsidies that provided…that’s why I just stayed away and looked at the “retail” price.

A point I overlooked though is that the $5 ethanol price would be comparable to (roughly) the retail rate of gas less about $.43 of taxes (about $3.40 or so now in MN)…that makes the issue even worse…if it comes to be.

By: steveegg

steveegg — Tue, 17 Jun 2008 21:25:50 +0000

December’s a good long-term timeframe; the corn that’s under water now would have been in the pipeline (so to speak; ethanol and pipelines don’t mix) by then.

One thing I forgot to note; the ethanol futures do not have the $0.184/gallon federal gas tax on it. If memory serves, the gas futures do.

By: Shoebox

Shoebox — Tue, 17 Jun 2008 21:07:23 +0000

I think we’re in agreement….both of the charts, and info, were for Dec. delivery of the options. Felt like that would be a good timeframe as it should have the “known” of the impact of the flood.

By: steveegg

steveegg — Tue, 17 Jun 2008 16:21:05 +0000

It’s not quite as simple as that. You have to compare not only the futures markets, but also the same month. I know CBOT and NYMEX (ethanol and reformulated unleaded, not laced with ethanol, respectively) don’t make it easy; the default “chart” month for ethanol is December, while it is July for gas.

At the beginning of April, both ethanol and gas futures were trading at about $2.30/gallon, for both July and December delivery. Gasoline exploded with the explosion in the crude market, up to $3.43 (and change)/gallon (essentially live) for July delivery and $3.24 (and change)/gallon for December delivery.

Meanwhile, it took the floods to get the ethanol market to move from its $2.30-$2.40 trading range, up to (as of yesterday) $2.859/gallon for both July and December delivery. Interestingly, August and November futures were higher than July/December.