The Midwest continues to see the effects from the recent month of March floods and is causing ethanol to be near its highest basis level since 2014. While prices go up and barrels are trapped in the country’s interior, it’s causing the U.S. coasts to suffer from a biofuel shortage.
With the shortage in the Midwest, gasoline prices in Los Angeles and Southern California are topping at almost $4 a gallon, according to GasBuddy.
The floods inflicted billions of dollars in damage to crops and homes and knocked out roughly 13 percent of ethanol capacity.
Majority of the U.S. ethanol is made from corn and required by the government to be blended into the nation’s fuel supply to reduce emissions. The primary effect of the rising waters was to shut rail lines that serve as the main channels for corn and ethanol deliveries.
Ethanol, used in most supply contracts, initially jumped on the news of the flooding that affected the Chicago pricing hub. However, with the rising waters, it halted barges and sales. This in turn has drawn in heavy imports from Brazil, the U.S. main ethanol competitor.
“Unfortunately for anyone who was impacted by logistics issues it was a double whammy. You couldn’t capture the rally,” said one trader.
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 trend since April of last year, according to Oil Price Information Service, which does daily assessments.
There were fears of plant outages that boosted the benchmark, but plants proved more resilient than expected, continuing to produce despite logistical challenges.
U.S. inventories were at 24 million barrels for the week by the end of March, just off a record hit a week earlier, according to U.S. Energy Information Administration.
At least one county in California has already surpassed $4 a gallon. According to AAA, prices in California are averaging at $3.78 a gallon, much higher than the national average of $2.74 a gallon. In Arizona gas prices averaged at $2.88 per gallon on Sunday, 17 percent higher than last month.
Overall ethanol imports to the U.S. totaled 558,279 barrels in March. Topping at the most since 2013. Most of the imports came from Brazil according to Refinitiv Eikon ship tracking data.