Ethanol Declines for Third Day on Concern Inventories Stay High

Ethanol declined for a third day on speculation that production cuts aren’t enough to spur demand.

Futures fell following an Energy Department report July 18 that ethanol stockpiles rose to 19.6 million barrels even as producers cut output to the lowest level in at least two years. Higher corn costs brought on by drought have cut margins.

“Ethanol has seen a huge drop in production, but yet stocks are steady,” said Mike Blackford, a consultant at INTL FCStone in Des Moines, Iowa.

Denatured ethanol for August delivery fell 5.4 cents, or 2 percent, to settle at $2.651 a gallon on the Chicago Board of Trade, the lowest price since July 13 and the biggest decline since June 1. Prices have gained 20 percent this year.

There are 42 gallons in a barrel of ethanol, so 19.6 million is the equivalent of about 823 million gallons. Blackford estimates that inventories need to fall to about 750 million gallons in order to stoke demand.

Corn for December delivery fell 10.25 cents, or 1.3 percent, to $7.855 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Producers are losing 35 cents on each gallon of the biofuel made, based on the September contracts for corn and ethanol, according to data compiled by Bloomberg.

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

To contact the editor responsible for this story: Bill Banker at bbanker@bloomberg.net