WASHINGTON and DES MOINES, Iowa – April ethanol futures early this week continued an upward trend beyond April gasoline futures, leading to the widest spread between the two prices since July of 2011.
Iowa Renewable Fuels Association Executive Director Monte Shaw says it’s clear what’s driving ethanol prices up.
“There’s a pretty severe shortage of rail cars out there right now,” Shaw says. “The railroads are way behind; we’ve got unit trains of ethanol sitting in Chicago. We knew there was pressure on the system, but why it all seemed to come to bear right away, I don’t know, and it really has a lot to do, ironically, with oil.”
Currently no pipeline serves the oil boom taking place near North Dakota’s Bakken formation, a problem that has consumed many available rail cars and contributed to sky-high propane prices this past winter.
It’s unclear whether or not the shortage of rail cars will persist, but Shaw says that even if it does, ethanol’s higher octane rating results in better performance when blended with lower-octane fuels. He says that because ethanol is competing with more expensive octane components, as opposed to competing with the price of gasoline itself, ethanol blends are a better buy even at higher prices.
“When you go to the pump, you’re still going to see ethanol blends cheaper than gasoline blends, because, you know, ethanol is not just replacing ten percent of the volume of that gallon of gas, it’s adding two points of octane,” Shaw explains. “You know, even if ethanol prices creeped above gasoline for a short period of time, it’s still lowering the price of a gallon of gasoline because, ethanol doesn’t really compete against base 84-octane gasoline, it competes against how else you would add octane to that fuel.”
