Ethanol Declines Second Day on Signs of Lower Consumption

Ethanol futures declined for a second day in Chicago as corn and gasoline dropped on signs of lower demand.

Prices for the biofuel followed the other commodities lower as President Barack Obama prepared for talks with congressional leaders to avert a $607 billion “fiscal cliff” in mandated spending cuts and tax increases starting in January. They also decreased as euro-area finance ministers put off until Nov. 20 a decision on financing Greek debt.

“With energies trading the way they’re trading and corn getting hammered, that’s pressuring ethanol,” said Dan Flynn, a trader at Price Futures Group in Chicago. “The economy isn’t looking too sharp either.”

Denatured ethanol for December delivery fell 1.1 cents, or 0.5 percent, to $2.316 a gallon at 12:25 p.m. local time on the Chicago Board of Trade, the lowest price since Nov. 5. Futures have risen 5.1 percent this year.

Ethanol’s discount to the motor fuel narrowed to 32.86 cents a gallon from 34.93 cents yesterday, boosting the biofuel’s luster for refiners to use more in an effort to pocket the spread between the two. Gasoline traded at a premium of 99.8 cents a gallon to ethanol as recently as Sept. 28.

In cash market trading ethanol on the West Coast dropped 5 cents to $2.495 a gallon and in New York the additive decreased 3.5 cents to $2.435, data compiled by Bloomberg show.

Ethanol in the U.S. Gulf fell 2 cents to $2.41 a gallon and in Chicago the biofuel slipped 1 cent to $2.35.

Corn Decreases

Corn for December delivery slumped 7 cents, or 1 percent, to $7.11 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Ethanol is made from corn in the U.S. and blended with gasoline to stretch supply and meet federal mandates.

Prices for the grain have fallen since a Nov. 9 U.S. Department of Agriculture report forecast that farmers will harvest 10.725 billion bushels of corn this year, up from an October estimate of 10.71 billion, Flynn said.

About 42 percent of this year’s crop will be consumed by ethanol, up from 40 percent last year, the USDA said in the report.

Based on December contracts for corn and ethanol, producers are losing 27 cents on each gallon of the fuel made, down from 28 cents on yesterday, excluding the revenue that can be made from the sale of dried distillers’ grains, a byproduct of ethanol production that can be fed to livestock, data compiled by Bloomberg show.

Gasoline for December delivery fell 3.17 cents, or 1.2 percent, to $2.6446 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.

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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