Factors Affecting Ethanol Price

Ethanol is sold into the gasoline blending market where it competes with other oxygenates and octane components, as well as with gasoline itself. Historically, ethanol prices have been highly correlated with the price of gasoline and gasoline blending components. However in 2005, the prices of ethanol and gasoline began a significant divergence, with ethanol selling for much less than gasoline at the wholesale level. Beginning in 2005, ethanol began to be traded as a commodity on the Chicago Board of Trade.

The price of corn has very little to do with the price of ethanol. That’s why low corn prices do not always indicate low ethanol prices—and why high corn prices do not always lead to high ethanol prices.

The greatest effect on the price of ethanol is the supply and demand for ethanol in specific markets. As MTBE is phased out due to its threat to groundwater quality, the demand for ethanol has increased.

Prices also vary according to location and the time of year. Many consumers have noticed the difference between the prices of winter and summertime gasoline. This is because summertime gasoline is controlled for evaporative emissions. Thus, summertime gasoline is more expensive to produce than winter gasoline. Ethanol blends are no different.

Additionally, blending economics can vary from one region of the country to another, creating significant difference in the pump price even though ethanol prices are similar in each region.