From: Reuters
Published March 28, 2008 01:15 PM

U.S. ethanol margins up as corn slips

NEW YORK (Reuters) - Average profits for distilling U.S. ethanol rose this week on softer corn prices, but analysts were cautious that a USDA planting report due on Monday could be bad news for a continued rise in profits.

Ethanol margins this week were about 10 cents higher at 25 to 35 cents-per-gallon from the range seen in recent weeks on softer corn prices, analysts estimated.

Players were awaiting a U.S. Department of Agriculture planting survey due on Monday that was expected to show that farmers, lured by record soybean prices of more than $13 a bushel, will shift some planting from corn to soy. A big shift could boost prices for corn, the main U.S. feedstock, and keep a cap on margins for the alternative motor fuel going forward.

"We remain cautious on the corn-based ethanol producers, given our outlook for corn prices to remain strong," Ron Oster, an analyst at Broadpoint Capital, Inc in Missouri, said in a research note on Friday.

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Oster said ethanol margins could be helped if corn planting turned out to be larger than expected in the USDA report, but that margins would still likely be "relatively modest."

Spot ethanol prices in the Midwest were pegged at $2.45 a gallon over the week, down about 4 cents from prices earlier in the month, but were supported by high petroleum prices.

Crude oil prices traded around $106 a barrel on the week supported by a pipeline attack in Iraq that briefly slashed exports from the country's southern oil port for the first time in years and an outage at a major South Korean refinery.

May CBOT corn futures closed at $5.55-1/2 a bushel on Thursday, down about 14 cents from earlier in the month.

A Citibank research note early this week said that lower cash corn prices, which closed last week at $4.68 a bushel it said, have helped margins.

The ethanol crush spread rose about 14 cents to 51 cents per gallon according to Reuters calculations. After conversion costs for making the fuel, including natural gas costs, ethanol producers were averaging about 25 to 35 cents per gallon in profit.

Strong natural gas prices limited profits. Average cash natural gas prices in the Midwestern United States were $8.17 per million British thermal units. That was down from a peak earlier in the month of $9.14 but still up from the same period last year then they were below $6.00, according to Reuters data.

(Reporting by Timothy Gardner, editing by Marguerita Choy)

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