While it isn't too surprising to me that my ethanol/corn spread trade lost money as corn rallied to new highs, looking at it more closely I think there was more going on than just speculators distorting that relationship. Trading ethanol versus corn is just an approximation of the actual economics of the ethanol "crush." The main factors left out are the price of power (natural gas can be a proxy) and the DDG produced along with the ethanol. Usually the ethanol produced accounts for the vast majority of the value of the corn products (over 85%), but with the run-up in corn and high prices for cattle, DDG prices have rallied sharply now accounting for 20% of the value of the crush.
So with DDG so well bid, ethanol producers producers can hum along with lower margins on the corn whiskey...
For some reason, the CME still publishes closing prices for their (zero open interest) futures on DDG at $112.80/ton (Feb) while DTN says cash markets are over $185.
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