The Energy Information Administration has released its most recent ethanol production and ending stocks data (for the month of July). The July ethanol production estimate is at a record 19 million barrels (mb) versus June's production of 17.5 mb. The 19 million barrels of July 2008 production represents an increase of 45% versus July of 2007. The July 2008 production missed a target of 19.9 million barrels that needed to be produced in order to maintain the pace required to meet USDA's target for corn use in 2007/08 of 3 billion bushels. Given the current pace of ethanol production and with one month remaining in the 2007-08 marketing year, USDA may need to trim the 3 billion bushels of corn use by 12 million bushels.
More news from the EIA is the July ethanol ending stocks level had an increase to a level of 13.2 million barrels compared to 12.3 mb in June. One year ago for the month of July ethanol end stocks were estimated to be 9.7 million barrels. This suggests a year on year stock build of 36%.
In conclusion, increasing production of ethanol is bullish but increasing stocks is viewed as bearish. Allendale's research suggests with one month remaining in the 2007/08 marketing year, the August ethanol production needs to be a minimum of 20.5 million barrels in order to utilize a targeted 3 billion bushels of corn.
In looking forward, of the most recent nine years, July to August ethanol production has increased seven of those nine years. With regards to ending stocks of the most recent nine years, six of the years showed that stocks increased.
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