MICROECONOMIC

Microeconomic

Microeconomics

Ethanol Futures Rise to One-Week High on Lower Midwest Supply

By Mario Parker

Dec. 1 (Bloomberg) -- Ethanol futures in Chicago rose to the highest price in more than a week amid tighter supply of the biofuel.

Futures gained a day after an Energy Department report showed ethanol stockpiles declined 2.3 percent to 17 million barrels last week, the steepest decline and lowest level since the week ended Nov. 4. Supply in the Midwest is 6 percent lower than a year earlier.

“The December contract is coming up to delivery,” said Justin Dirico, senior ethanol trader at SCB & Associates in Chicago. “There's been some barges headed to the East Coast, but in the Midwest there's still a need for prompt barrels. People are scrambling.”

Denatured ethanol for December delivery rose 4.3 cents, or 1.7 percent, to $2.527 a gallon on the Chicago Board of Trade, the highest price since Nov. 22. The futures fell 9.9 percent in November and have climbed 6.3 percent this year.

In cash market trading, ethanol in the U.S. Gulf sank 10.5 cents, or 3.6 percent, to $2.82 a gallon and on the West Coast the biofuel plunged 9 cents, or 3.1 percent, to $2.795, according to data compiled by Bloomberg.

Ethanol in Chicago decreased 6.5 cents, or 2.3 percent, to $2.71 a gallon and in New York the additive slipped 0.5 cent to $2.82. (BusinessWeek [a], 2011)

Summary

This news story mentions the effects of shortage of supply of ethanol, which result in increase of price of ethanol in Chicago. The news story clarifies that merely because of the shortage of stockpile of ethanol the price is increased.

Microeconomic Effects

The microeconomic affect of this shortage of ethanol in California can be termed as higher equilibrium price and lower quantity. Because in this case, the supply of the commodity decreases while its demand remains unchanged which leads to increase in prices.

The potential impact of this change in supply on consumers

Every change either in demand or supply ultimately affects consumer, because it is the consumer who has to pay more for the product. However, if a consumer has limited capital than in such cases the consumer has to limit its usage of the product.

Palm Oil to Climb on Soybean Oil Supply Cut, Demand, Mistry Says

By Ranjeetha Pakiam

Sept. 16 (Bloomberg) -- Palm oil may rally next year as demand for biofuels cuts soybean oil supply and a potential reversal in monetary policy in China and India boosts demand, according to Dorab Mistry, director of Godrej International Ltd.

Prices in Malaysia will see a gradual recovery after November to reach 4,000 ringgit ($1,296) a metric ton by the second quarter of 2012, Mistry said, maintaining a forecast he made on July 28. Futures may “bottom out” at about 2,800 ringgit a ton this month, he said. The commodity last traded below 2,800 ringgit in October 2010 and ended at 3,078 ringgit yesterday. The market is closed today.

“Both China and India have been raising interest rates and tightening money supply in order to fight food inflation in their ...