Ethanol Plunges Amid Disagreement Over Tax Credit Extension

Ethanol futures tumbled to an eight- week low in Chicago as factions of U.S. lawmakers split on whether to extend the blending tax credit.

The biofuel slumped a third time this week less than a month before the expiration of the 45-cent tax credit and 54- cent import tariff. Refiners receive the tax credit for each gallon of ethanol blended into gasoline.

“All of the political things are weighing on this right now,” said Dan Flynn, a trader at PFGBest in Chicago. “It’s biding its time.”

Denatured ethanol for December delivery fell 4.9 cents, or 2.3 percent, to settle at $2.075 a gallon on the Chicago Board of Trade, the steepest decline since Nov. 19 and the lowest price since Oct. 7. Futures have gained 6.4 percent this year.

U.S. Senators Charles Grassley, a Republican from Iowa, and Kurt Conrad, a Democrat from North Dakota, and 13 other lawmakers wrote a letter to Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell, urging the extension of the credit.

That followed a letter in which 17 senators from both parties, led by Senator Dianne Feinstein, a Democrat from California, and Jon Kyl, a Republican from Arizona, said they want to end the government incentives for the industry, saying that the subsidies are “fiscally irresponsible and environmentally unwise.”

In cash market trading ethanol in the U.S. Gulf fell 4 cents to $2.225 a gallon and sank 5.5 cents on the West Coast to $2.19, according to data compiled by Bloomberg at 3:36 p.m. in New York.

Ethanol in New York lost 5 cents to $2.19 a gallon and in Chicago the additive declined 6 cents to $2.08.

An Energy Department report yesterday showed that production of conventional gasoline blended with ethanol tumbled 6.8 percent to 4.52 million barrels a day last week, the lowest level since April 30.

An average ethanol mill in Iowa is losing 2 cents on every gallon produced while an Illinois plant is earning 4 cents a gallon on a spot basis, according to Ag Trader Talk, an online grains information service in Clive, Iowa.

To contact the reporter on this story: Mario Parker in Chicago at mparker22@bloomberg.net.

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.

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