By OGJ editors
HOUSTON, Mar. 23 -- The New York Board of Trade (NYBOT) said Tuesday it is launching new world ethanol futures and options contracts, with the futures contract trading to begin May 7 and options, May 10.
"There is no clear price correlation between ethanol and other fuel manufacturing components, as ethanol doesn't track well with the octane (gasoline) market," said a NYBOT spokesman in a news release. "As a consumable commodity with an economic presence in both the agricultural and energy sectors, ethanol needs its own price reference."
The new contracts, priced in cents/gallon, call for fob vessel delivery of 7,750 gal of biomass-derived, undenatured, anhydrous ethanol meeting specific quality criteria. The contract also specifies 32 countries of origin and will list for trading the months of March, May, July, October, and December.
"The industry told us they need an ethanol futures market," said Charles H. Falk, NYBOT president and CEO, who added that the ethanol contract "is deliverable, free on board, and closely adheres to the industry's specifications. The contract standardizes quality, and comes in a smaller unit size, which enhances liquidity, along with the assurances gained from being traded on a public exchange. We think those in the ethanol, sugar, environmental, automotive, and futures communities will find interesting and unique hedging opportunities as this market develops."
Growing ethanol market
Current global ethanol output is estimated at 10.2 billion gal/year, and output growth is projected at 5-10%/year until 2012, according to commodity expert F.O. Licht.
Pending US federal legislation includes provisions encouraging use of ethanol to improve the emissions quality of gasoline (OGJ Online, Feb. 25, 2004), and other nations also are launching initiatives to increase its production and use. Current key producers are Brazil, the US, Canada, Mexico, Colombia, Peru, Central America, the European Union, Poland, Russia, Eastern Europe, Asia-Pacific, and the southern tip of Africa. Brazil provides 50% of the world's ethanol and has promoted sales of flex-fuel cars—introduced last March—that use alternate fuels.
More than 60% of the world's ethanol supply is derived from sugar, said NYBOT Chairman Frederick W. Schoenhut. Cane Agroindustry Union of Sao Paulo (Unica), a Brazil-based trade-group of sugar producers, has been an active partner in working with NYBOT on the details of its ethanol contract.
"We. . . believe [NYBOT's launching of the ethanol futures contract] is a huge step towards the establishment of an international ethanol market," noted Unica Pres. Eduardo Pereira de Carvalho.
