Ethanol Strengthens Against Gasoline on Below-Average Production

Ethanol futures in Chicago gained against gasoline amid below-average output for the biofuel.

Production fell 13,000 barrels a day to 811,000 barrels in the week ended Nov. 16, below the two-year average of 904,000 barrels in Energy Department data for the same week of the year. Companies have struggled to make a profit from distilling the fuel from a bushel of corn as prices of the grain have climbed 15 percent this year.

“The market’s starting to worry about future supply,” said Jerrod Kitt, an analyst at Linn Group in Chicago. “You’d be hard-pressed to find many people that are making money. It’s just tough.”

The grain-based additive’s discount to the motor fuel narrowed to 35.19 cents a gallon from 36.85 cents Nov. 22, based on December futures prices. The difference between the two was 99.8 cents on Sept. 28.

Denatured ethanol for December delivery rose 1.1 cent, or 0.5 percent, to settle at $2.392 a gallon on the Chicago Board of Trade. Prices have gained 8.6 percent this year.

Gasoline for December delivery slipped 0.56 cent, or 0.2 percent, to $2.7439 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Corn for March delivery advanced 0.6 percent to close at $7.4975 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Output Losses

Based on December contracts for corn and ethanol, producers are losing 32 cents on each gallon of the fuel made, up from 31 cents on Nov. 21, according to data collected by Bloomberg. The figure excludes any revenue from the sale of dried distillers’ grains, a byproduct of ethanol production that can be fed to livestock.

At least 10 ethanol companies, from Valero Energy Corp. (VLO) to Biofuel Energy Corp. (BIOF), have closed distilleries, citing thin margins to make the fuel.

Output is on track for the first yearly decline since 1996, Energy Department data show. Production will fall 1.2 percent to 850,000 barrels a day in 2013, or 13 billion gallons on an annualized basis, the agency said in its Short-Term Energy Outlook on Nov. 6.

A U.S. law requires refiners to use 13.2 billion gallons of ethanol this year and 13.8 billion in 2013.

“There’s no incentive to make any,” Kitt said.

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

Bloomberg reserves the right to edit or 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.