Ethanol Gains Most in 18 Months as Report Signals Higher Costs

Ethanol rose the most in 18 months, capping the best quarter since March 2011, following a government report showing an unexpected drop in corn inventories that may lead to higher production costs.

Prices surged after the Agriculture Department said corn stockpiles left from last year’s U.S. harvest totaled 988 million bushels on Sept. 1, down 12 percent from 1.128 billion a year earlier and below the 1.145 billion forecast in a Bloomberg survey. The grain is used to make ethanol in the U.S.

“The trade got caught off guard,” said Mike Blackford, a consultant at INTL FCStone Group in Des Moines, Iowa. “Ethanol followed. It’s kind of a big circle when you get down to it.”

Denatured ethanol for October delivery climbed 12.1 cents, or 5.4 percent, to settle at $2.344 a gallon on the Chicago Board of Trade, the biggest gain since March 31, 2011. The futures jumped 5 percent during the third quarter, the most since the first three months of 2011.

In cash market trading, ethanol on the West Coast surged 15 cents, or 6.5 percent, to $2.455 a gallon and in the U.S. Gulf the additive increased 10 cents, or 4.3 percent, to $2.405, data compiled by Bloomberg shows.

Ethanol in Chicago added 9.5 cents, or 4.3 percent, to $2.315 a gallon and in New York the biofuel rose 9.5 cents, or 4.1 percent, to $2.395.

Corn for December delivery advanced the exchange-limit 40 cents, or 5.6 percent, to $7.5625 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Gasoline for October delivery jumped 19.77 cents, or 6.3 percent, to $3.342 a gallon in New York. The contract covers reformulated gasoline, which is made to be blended with ethanol before delivery to filling stations.

The motor fuel widened its premium to ethanol to 99.8 cents from 92.13 yesterday, the highest since April 27, on concern that lower output from refineries in Canada, Wales and the Netherlands will tighten supply of the fuel on the U.S. East Coast.

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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