Is the Price of Ethanol Going to Rise in March 2020?

The price of ethanol is currently at $1.24 per gallon, at the time of writing.  This is definitely on the low side, although recent days have seen the price rising. Could this month be the start of a strong recovery on the market?  

The Price History

Ethanol is a volatile commodity whose price can swing massively in a short period of time. It has suffered a poor few years with consistently low prices. In fact, the price was just showing some signs of recovery when coronavirus reared its head and dampened the global demand for fuel.

The price is altered by factors such as the price of the corn and sugarcane that are used to obtain it. In 2019, over-supply in the market also meant that prices fell and some producers were forced to consider cutting production levels.

If we look at the price history of ethanol, we can see a massive spike in 2014 to over $3.50. Since then, the price has been depressed to lower than pre-2014 levels. Discovering the factors behind this is the key to understanding the future of the price of ethanol.

The 2019 Ethanol Industry Outlook revealed record-breaking production and consumption of the bio-fuel in the US during 2018. Yet, the price of the commodity remained low during this period. Perhaps the key is that fuel prices are low in the US. For ethanol to rise, we need more consumption in other parts of the world.

The US is the biggest ethanol producer and consumer, with close to 16 billion in 2017. Together with Brazil, they produce 85% of all the ethanol on the planet. In the US, corn is mainly used. In Brazil, abundant supplies of sugarcane keep the price low.

Europe and Asia could be the markets that help to lift demand levels above supply. Many countries have government incentives to increase production. These include Germany, Thailand, China and Spain. The question is whether there will be enough demand to push prices higher.

If we look at India, the world’s second most populous country produced 85 million liquid gallons in 2014 but 400 million in 2018.  Chinese production rose from 635 million gallons to 1,050.

What Could Happen Next?

Some sources suggest that the coronavirus outbreak could push up ethanol prices in the near future. This may or may not happen, as the market is quite unpredictable right now. In fact, other people think that the virus outbreak could have opposite effect, as it reduces the demand for all types of fuel as fewer people travel.

In Brazil, ethanol stocks fell by 5.9% in the last year but demand remained high, causing prices to rise. If adverse weather or the spread of coronavirus cause poor harvests this year, there could be a shortage that pushes prices higher.

As with any commodity, there are too many diverse factors to make a clear prediction on the future. However, with the current price being low, the option of investing in ethanol seems like a decent approach to diversify and look for some possible profits just now.