URL https://www.reuters.com/article/us-usa-ethanol-adm/commodities-giant-adm-ramps-up-ethanol-sales-in-chicago-irking-rivals-idUSKCN1LS303

DATE/ AUTHOR 2018-09-12 20:02:04+00:00	AUTHORS: Jarrett Renshaw, Min Read

H Commodities giant ADM ramps up ethanol sales in Chicago, irking rivals

S1 NEW YORK/CHICAGO (Reuters) - Archer Daniels Midland Co has sold unusually high volumes of ethanol into the Chicago market since late last year as export markets dried up, driving down prices in the U.S. Midwest and angering the company’s rivals, according to traders and regulatory data.

S2 FILE PHOTO: The world's largest corn mill of global grain company Archer Daniels Midland is pictured in Decatur, Illinois, U.S., March 16, 2015.
S3 REUTERS/Karl Plume/File Photo

S4 The Illinois-based global commodities powerhouse, a major ethanol producer, accounted for roughly 61 percent of the 9.5 million barrels sold at the Chicago hub between November and August, according to the data reviewed by Reuters.

S5 Previously, ADM had been a regular buyer: In September and October of last year, for example, ADM bought 810,000 barrels, 32 percent of the 2.495 million total trades in the Chicago hub during that stretch, according to the data.

S6 ADM’s shift came amid an upheaval in the domestic ethanol market as U.S. demand flatlined and export markets, including China and Brazil, were cut off due in part to the effects of President Donald Trump’s widening trade disputes.

S7 With growth in export markets slowing, U.S. ethanol inventories swelled to a record.
S8 Ethanol traders say ADM is saturating the domestic market, anchoring prices and bleeding out smaller producers less equipped to manage through the tough times.

S9 ADM spokeswoman Jackie Anderson, when asked about the shift in the company’s strategy, said ADM does not comment on the specifics of its commercial activity.

S10 Ethanol futures prices traded on the Chicago Board of Trade late last month fell to $1.21 per gallon, lowest in over a decade.
S11 Ethanol in Chicago cash markets, meanwhile, were about $1.28 per gallon, just above a low of $1.24 from December, traders told Reuters.

S12 The heavy selling by ADM has led traders who have lost money on the slumping ethanol market to complain to S&P Global Platts, which provides benchmark pricing for the physical ethanol contract at different U.S. delivery points including Chicago.

S13 In July, Platts hosted an ethanol pricing methodology workshop in Houston at which senior traders from the largest U.S. ethanol trading shops expressed anger about ADM’s influence on the market, according to several traders who attended.

S14 “It’s one person’s view of the market,” said one trader who attended the meeting.

S15 “Traders are angry ... and they blame ADM,” another trader said.

S16 Platts said the company is conducting ongoing discussions about evolving its pricing methodology, including feedback from the July conference.

S17 “We are still evaluating the feedback and continuing bilateral conversations with market participants who were not able to attend,” the company said in a written statement.

S18 ADM can produce roughly 1.6 billion gallons of ethanol annually, about 10 percent of U.S. capacity.
S19 Despite its massive production, it has often been a buyer on the cash market to supplement its long-term supply deals or to support a market view, dealers said.

S20 The company has told investors that a sustained trade war with China could hurt sales.
S21 China, considered the top growth market for U.S. ethanol exports, imposed tariffs of about 70 percent on imports of American biofuel - all but halting shipments there.

S22 BIG DELIVERIES

S23 The commodity giant has also been using the futures market to show that it could deliver additional volumes in and around the Chicago hub.
S24 The company can easily ship to Chicago from its large ethanol plants in Iowa.

S25 On the Chicago Board of Trade, ADM registered all 579 ethanol contracts for delivery as of Tuesday, each contract representing 29,000 gallons – or enough for about one rail tanker car - the most in the history of the contract, according to CME Group data.

S26 The registrations were a signal to the over 20 other companies also registered to participate in CBOT ethanol deliveries - which include Shell, Green Plains Inc, Vitol and Mercuria - that ADM has an abundant supply of biofuel in storage, to tap and sell against the futures contract.

S27 “We don’t really know or understand what they are doing,” said one CEO of a publicly-traded ethanol company.

S28 One trader noted that ADM was short 400,000 barrels last week on the Chicago Board of Trade.
S29 As a major ethanol producer, they are long physical gallons so having a short position in futures as a hedge against physical price declines is not unusual, traders said.

