Ethanol Declines Second Day on Tax Credit Extension Concern

Ethanol futures declined for a second day in Chicago on concern that Congress may not extend tax credits for the biofuel.

Prices slumped for the fourth day this week as members of U.S. Senate were divided on whether to extend or end the 45-cent tax incentive provided to refiners for each gallon of the fuel blended, and the 54-cent tariff levied on Brazilian imports.

“The uncertainty about what Congress is going to do has put a bearish undertone in the market,” said Terry Reilly, an analyst at Citigroup Global Markets Inc. in Chicago. “If the subsidies go away you’re basically looking at a slow decline in blend rates.”

Denatured ethanol for December delivery fell 2.4 cents, or 1.2 percent, to settle at $2.051 a gallon on the Chicago Board of Trade, the lowest price since Oct. 7. The contract expired today. Futures have gained 5.2 percent this year.

In cash market trading ethanol in New York slipped 1 cent, or 0.5 percent, to $2.18 a gallon and in Chicago the additive lost 1 cent, or 0.5 percent, to $2.07, according to data compiled by Bloomberg.

Ethanol in the U.S. Gulf sank 2.5 cents, or 1.1 percent, to $2.20 a gallon and on the West Coast the biofuel declined 1 cent, or 0.5 percent, to $2.18.

Government incentives for the fuel would be slashed by 20 percent to 36 cents a gallon and extended for one year, along with the Brazilian tariff, under a bill set for a vote tomorrow that was introduced by Senator Max Baucus, a Democrat from Montana and chairman of the Finance Committee.

Letter to Leaders

Senators Charles Grassley, a Republican from Iowa, and Kent Conrad, a Democrat from North Dakota, and 13 other lawmakers wrote a letter to Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell this week 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.”

An Energy Department report Dec. 1 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.

“The report showed the lowest blending rate since April,” Reilly said. “A lot of people are just nervous.”

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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