Ethanol Gains on Speculation Production Losses Will Cut Supply
Ethanol futures advanced in Chicago on speculation losses will prompt producers to idle output.
Prices gained a day after Biofuel Energy Corp. (BIOF), a U.S. ethanol producer partially owned by venture capitalists David Einhorn and Daniel Loeb, idled its 115 million-gallon-a-year plant in Fairmont, Minnesota, because of poor margins.
“There’s rumors of plants closing or at least cutting rates,” said Ian Jackson, an ethanol trader at SCB & Associates in Chicago. “It’s the margins.”
Denatured ethanol for October delivery rose 1.2 cents, or 0.5 percent, to $2.263 a gallon on the Chicago Board of Trade, the highest price since Sept. 19. Futures have climbed 2.7 percent this year.
In cash market trading, ethanol in Chicago added 3.5 cents, or 1.6 percent, to $2.245 a gallon and in the U.S. Gulf the additive increased 3 cents, or 1.3 percent, to $2.305, data compiled by Bloomberg showed.
Ethanol in New York gained 1 cent, or 0.4 percent, to $2.29 a gallon and on the West Coast the biofuel rose 0.5 cent to $2.38.
Based on December contracts for ethanol and corn, producers are losing about 42 cents on each gallon of the biofuel made, according to data compiled by Bloomberg. That doesn’t include profit from the sale of dried distillers’ grains, a byproduct of ethanol production that can be fed to livestock.
Valero Energy Corp. (VLO), the third-biggest U.S. ethanol producer and the largest U.S. refiner by processing capacity, this month restarted idled mills in Albion, Nebraska, and Linden, Indiana, after shutting them in June on unprofitable returns.
Smaller companies may be forced to shut plants because they don’t have the resources of a large producer such as Valero, with 1.2 billion gallons of annual capacity, Jackson said.
Gasoline for October delivery jumped 4.95 cents, or 1.7 percent, to $2.9671 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, which is made to be blended with ethanol before delivery to filling stations.
Gasoline widened its premium to ethanol to 70.4 cents, the highest since May 31, from 66.7 yesterday, making the fuel more attractive for blenders to use as they stand to pocket the difference between the two.
Corn for December delivery dropped 1 cent to settle at $7.4375 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.
The value of Renewable Identification Numbers, known as RINs, fell 3.9 percent to 2.5 cents, data compiled by Bloomberg show. RINs are credits that help the government track whether refiners are meeting 2012 federal ethanol use mandates.
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