SAINT PAUL, Minn. -- The Minnesota Attorney General's Office has concluded that ethanol and E85 prices show little relationship to corn prices. Rather, E85 prices parallel regular gasoline prices, and are also being influenced by supply and demand factors unique to ethanol, such as the methyl tertiary butyl ether (MTBE) ban and surge in the use of ethanol as an oxygenate on the East Coast and in Texas.
Mike Hatch's office began to review ethanol and E85 pricing in the fall of 2005, after consumers and small E85 wholesalers raised questions about why [image-nocss] E85 prices had risen so sharply. Consumers noted that E85 prices were nearly the same as regular gasoline prices, and in some parts of the state, even exceeded the price of regular gasoline by 10 cents per gallon or more.
Consumers questioned why the price of E85, which is typically 85% ethanol and 15% gasoline, would increase similar to the price of regular gasoline. From these inquiries, it was apparent that there is a popular belief that the price of E85 should track the price of corn, since ethanol is made from corn.
In response to these inquiries, the AG's Office issued Civil Investigative Demands (CIDs) to more than 24 ethanol and E85 producers, marketers, wholesalers, retailers and fuel terminals seeking information about how fuel ethanol and E85 were marketed, distributed and priced during a six-month period spanning from March to end of September 2005. These CIDs resulted in approximately 10,000 pages of documents being produced to and reviewed by the AG's Office, including invoices, contracts and other pricing information.
Based on the data provided, it appears that the price of E85 and ethanol have little correlation with the price of corn, Hatch's office said. Rather, it appears that ethanol and E85 prices tend to parallel changes in regular gasoline prices. E85 is a supplement or additive for regular gasoline, and for those who have flexible-fuel vehicles (FFVs), E85 competes with regular gasoline. As a competitor to gasoline, E85 prices are influenced by gasoline prices, and may even consciously parallel these prices, meaning that retailers may change E85 prices when regular gas prices change.
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