CBOT eyes 4Q launch for second US ethanol futures contract

By OGJ editors
HOUSTON, Apr. 21 -- Companies tracking US gasoline futures prices soon will be armed with another set of financial derivatives for a rapidly growing component of the nation's gasoline pool: ethanol.

The Chicago Board of Trade today disclosed that its board of directors approved the development of a corn-based ethanol futures contract. The new contract is expected to begin trading in the fourth quarter.

The CBOT ethanol futures contract thus will join a sugar-based ethanol futures contract announced last month by the New York Board of Trade (OGJ Online, Mar. 23, 2004). The NYBOT ethanol futures contract is scheduled to launch May 7, and its ethanol options contract on May 10.

Growth of ethanol volumes blended into in US gasoline is all but guaranteed, as a result of new energy legislation pending in Congress that mandates a minimum percentage of renewable fuels in reformulated gasoline (RFG), in tandem with proliferating bans on the only other widely available RFG oxygenate, methyl tertiary butyl ether.

Charles P. Carey, CBOT chairman, said, "There is tremendous growth potential in ethanol production. Today, ethanol production capacity in the US is 3 billion gal[/year], with expectations that it will grow into a 5 billion gal[/year] market."

In fact, the renewable fuels standard (RFS) in the energy bill pending in Congress requires 3.1 billion gal/year of renewable fuel use in the US transportation sector in 2005, increasing to 5 billion gal/year by 2012. In 2013 and beyond, the share of renewable fuel is to remain proportional to what was sold in the US in 2012.
The RFS has strong bipartisan support in Congress as well as by the White House (OGJ Online, Feb. 25, 2004).

CBOT Pres. and CEO Bernard W. Dan said, "The move to develop a corn-based ethanol contract is a direct result of discussions with ethanol producers and consumers who are seeking new alternatives to navigate the price fluctuations and volatility that characterize the ethanol market."

A CBOT spokesmen noted to OGJ Online that while the vast majority of fuel ethanol produced in the US is corn-based, sugar-based ethanol dominates the global market.

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