Ethanol’s Discount to Gasoline Narrows as Production Costs Rise

Ethanol’s discount to gasoline narrowed as production costs for the biofuel increased.

The grain-based additive cost 31.68 cents a gallon less than gasoline, down from a difference of 34.93 cents yesterday, based on futures market prices. Gasoline traded at a premium of 99.8 cents a gallon to ethanol as recently as Sept. 28.

Ethanol followed corn higher on signs U.S. farmers are holding onto supply in an effort to stem a 14 percent decline from a record $8.49 a bushel on Aug. 10. One bushel of the grain makes at least 2.75 gallons of the renewable fuel.

Denatured ethanol for December delivery advanced 1 cent, or 0.4 percent, to $2.337 a gallon on the Chicago Board of Trade. Futures have risen 6.1 percent this year. Gasoline for December delivery fell 2.25 cents, or 0.8 percent, to $2.6538 a gallon on the New York Mercantile Exchange.

“There weren’t many sellers of ethanol here,” said Jordan Stern, a trader at SCB & Associates LLC in Chicago.

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 Futures

Corn for March delivery added 4 cents, or 0.6 percent, to $7.2625 a bushel in Chicago.

About 42 percent of this year’s crop will be consumed by ethanol, up from 40 percent last year, according to the Agriculture Department.

Based on December contracts for corn and ethanol, producers are losing 29 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.

The U.S. Environmental Protection Agency said today it will decide “shortly” whether to maintain, reduce or suspend the country’s ethanol mandate. A bipartisan group of lawmakers asked the Obama administration to halt or lower the requirement because drought reduced corn yields.

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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