Ethanol Gains Fourth Day as Losses Lead to Reduced Ouput

Ethanol futures rose a fourth day in Chicago as losses from making the fuel caused producers to reduce output.

Prices extended the longest streak of gains since July 18 after an Energy Department report showed production tumbled 3 percent last week to 785,000 barrels a day, the least since the agency began publishing weekly data in June 2010.

“There’s no margin there,” said Mike Blackford, a consultant at INTL FCStone Group in Des Moines, Iowa. “The market needed to adjust. We had burdensome supply and the market’s starting to take note of that and is responding.”

Denatured ethanol for October delivery climbed 1.8 cents, or 0.8 percent, to settle at $2.39 a gallon on the Chicago Board of Trade, the highest price since Sept. 14. The futures have jumped 8.5 percent this year.

In cash market trading, ethanol in the U.S. Gulf advanced 5 cents, or 2.1 percent, to $2.42 a gallon and in Chicago the additive jumped 4.75 cents, or 2.1 percent, to $2.3625, data compiled by Bloomberg shows.

Ethanol on the West Coast added 2.5 cents, or 1 percent, to $2.49 a gallon and in New York the biofuel increased 2 cents, or 0.8 percent, to $2.455.

Abengoa SA (ABG), a Spanish engineering and renewable energy company, said this week it will temporarily idle a Madison, Illinois, ethanol plant, for maintenance and on unprofitable returns.

That followed Biofuel Energy Corp.’s (BIOF) Sept. 24 decision to shut its 115 million-gallon-a-year plant in Fairmont, Minnesota.

Blackford said he expects “some more contraction” as producers wrestle with higher-than-normal corn costs, caused by the most severe U.S. drought in 56 years.

Corn Declines

Corn for December delivery fell 1.5 cents to $7.5675 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Based on December contracts for ethanol and corn, plants are losing about 35 cents on each gallon of the biofuel produced, 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.

Gasoline for November delivery tumbled 6.97 cents, or 2.4 percent, to $2.7995 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

The motor fuel narrowed its premium to ethanol to 40.95 cents, the smallest gap since Sept. 4.

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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