Ethanol Physical Delivery Over Exchange
If I had one contract worth of Ethanol from my plan in San Antonio, TX (hypothetically), and I sell one contract over the CME for delivery this month...
1) What are the logistics of the physical delivery? 2) Is this realistic to pursue if proper funds were raised? 3) What checkpoints/tests does the ethanol have to go through?
I have never delivered physical product in a futures trade. However, a family member owns one of the larger vodka companies in the world. I'm thinking I'd like to distill some ethanol and sell it on an exchange.
Looking forward to your feedback.
I'm going to answer (2) first. No - this is not realistic. Anything is possible with enough cash but I could not dream that someone with no trading or logistics background would be able to execute this profitably.
1) For one, a distillery is going to produce food grade/un-denatured ethanol so you'll have to have it denatured. You would need to buy MTBE or other to do this and co-ordinate a tank to blend this in. Naturally, you can't blend it in their tanks at the distillery as you'll contaminate their food grade material.
Next you'll need to coordinate loading this out into railcars and getting it to the delivery point - this would take a lot of legwork - you'd have to talk to car owners, the railroads, a terminal to load at that could also sublease tanks assuming your facility doesn't have rail access, etc.
3) Quality at delivery will have to be per ASTM D4806.
Good entrepreneurial idea but I think this could be tough to pull off.
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