Ethanol Weakens Against Gasoline as Imports Exacerbate Glut

Ethanol futures in Chicago weakened against gasoline as imports worsened a glut of the biofuel.

The grain-based additive’s discount to the motor fuel expanded to 36.85 cents a gallon from 32.55 cents yesterday, based on December futures prices. The difference between the two was 99.8 cents on Sept. 28.

An Energy Department report released today showed ethanol imports averaged 6,000 barrels a day in the week ended Nov. 16, compared with none a year earlier, while ethanol-blended gasoline made up 89 percent of the total U.S. gasoline pool, the lowest level in nine weeks.

“Domestic production is down so that’s obviously getting filled by Brazilian imports,” said Will Babler, a broker at Atten Babler Risk Management LLC in Galena, Illinois.

Denatured ethanol for December delivery fell 0.6 cent, or 0.3 percent, to settle at $2.381 a gallon on the Chicago Board of Trade. Prices have gained 8.1 percent this year.

Gasoline for December delivery advanced 3.7 cents, or 1.4 percent, to $2.7495 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

In cash market trading, ethanol in New York gained 1 cent to $2.485 a gallon and in Chicago the additive increased 1 cent to $2.39, data compiled by Bloomberg shows.

Ethanol on the West Coast climbed 1 cent to $2.545 a gallon and in the U.S. Gulf the biofuel rose 0.5 cent to $2.48.

Ethanol Stockpiles

Stockpiles of the additive swelled 6 percent to 18.9 million barrels last week, the biggest weekly gain in 22 months, while production fell 1.6 percent to 811,000 barrels a day, the Energy Department report showed.

Corn for March delivery declined 2 cents, or 0.3 percent, to $7.4525 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

The fuel is derived from sugarcane in Brazil, the world’s second-biggest ethanol producer, giving that country a competitive edge over U.S. manufacturers because of cheaper feedstock costs, Babler said.

Raw sugar for March delivery fell 1.3 percent to 19.64 cents a pound on ICE Futures U.S. The sweetener has plunged 16 percent this year compared with a 15 percent gain in corn.

“Sugar prices are low and corn prices are at the other end of the spectrum,” Babler said.

A 54-cent-a-gallon tariff on Brazilian imports was allowed to expire last year along with a 45-cent-a-gallon tax credit for ethanol blenders. Ethanol on the Brazilian spot market is fetching $2.04 a gallon, data compiled by Bloomberg show.

Based on December contracts for corn and ethanol, producers are losing 31 cents on each gallon of the fuel made, unchanged from yesterday, excluding the revenue that can be pocketed from the sale of dried distillers’ grains, a byproduct of ethanol production that can be fed to livestock, according to data collected by Bloomberg.

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.