July 25, 2012 / 5:58 PM / 5 years ago

UPDATE 1-U.S. ethanol output falls to two-year low

 * Ethanol output falls 6,000 bpd to 796,000 bpd
 * Daily output lowest since records began in June 2010

 (Revises headline, adds graphic, analyst quote)
 By Michael Hirtzer
 July 25 (Reuters) - U.S. ethanol production fell last week
to the lowest level in at least two years, posting a sixth
straight week of decline as surging corn prices and tight
supplies of the grain squeezed margins at biofuel refineries,
government data showed on Wednesday.
 Ethanol production fell 6,000 barrels to 796,000 barrels per
day in the week ending July 20, the lowest weekly total since
the U.S. Energy Information Administration began tracking the
data two years ago.
 It was the second consecutive week that production hit the
lowest weekly total on record.
 However, the 0.7 percent decline in production was the
smallest drop in more than a month. Stocks of the fuel fell
551,000 barrels to 19.01 million barrels, the data showed.
 Margins improved, even though many plants are still
operating in the red. In Illinois, the average margin was about
a negative 25 cents per gallon produced, but that was better
than the negative 62 cent margin of earlier this month,
according to Thomson Reuters data.
 Chicago Board of Trade corn futures hit an all-time
high of $8.28-3/4 per bushel on the final day of the reporting
period as the most expansive U.S. drought in five decades
reduced yields of the developing crop.
 At least three U.S. ethanol plants, two in Nebraska and one
in Indiana, are idled until profit margins improve.
 "There is nothing wrong with talking of demand destruction
at these prices (for corn). It is happening and will happen,"
said Allendale Inc analyst Rich Nelson.
 "Ethanol is not the prime demand destruction argument (for
corn) though. The energy market will give ethanol producers just
enough to encourage production at the minimum mandate level,"
Nelson said.  

 (Reporting by Michael Hirtzer in Chicago; Editing by Tim Dobbyn
and Jim Marshall)
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