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Ethanol’s Discount to Gasoline Widens on Import Speculation

Ethanol’s discount to gasoline widened for a second day on speculation the fuel’s 8.4 percent gain price this month will spur demand for imports.

The spread increased 2.39 cents to the largest gap in two weeks. Ethanol’s advance, on pace for the biggest monthly gain since July, makes the Brazilian sugarcane-based variety more competitive with the U.S. corn-derived grade.

“We’ve driven up prices to the point where the import play is back in,” said Mike Blackford, a consultant at INTL FCStone in Des Moines, Iowa.

The grain-based additive was 45.98 cents cheaper than gasoline, based on prompt-month contracts for both commodities, the widest since Jan. 10. The spread was 43.59 cents yesterday.

Denatured ethanol for February delivery fell 2 cents, or 0.8 percent, to $2.374 a gallon on the Chicago Board of Trade, the biggest decline since Dec. 26. Prices have advanced 10 percent in the past year.

Ethanol prices have surged on the back of higher corn prices as drought parched crops in the Midwest. Stockpiles of the grain on Dec. 1 were 17 percent smaller than a year earlier, a Jan. 11 Agriculture Department report showed.

Corn for March delivery decreased 7.75 cents, or 1.1 percent, to $7.2075 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Producers’ Loss

Based on March contracts for corn and ethanol, producers are losing 23 cents on each gallon of the fuel made, down from 24 cents yesterday, according to data collected by Bloomberg. The figures exclude the revenue that can be made from the sale of dried distillers’ grains, a byproduct of ethanol production that can be fed to livestock.

Gasoline for February delivery climbed 0.39 cent to $2.8338 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.

In cash market trading, ethanol fell 2.5 cents, or 1 percent, to $2.43 a gallon on the Gulf Coast, while in Chicago the additive slid 1.5 cents, or 0.6 percent, to $2.375, data compiled by Bloomberg show.

Ethanol in New York advanced 3 cents, or 1.2 percent, to $2.485 a gallon and on the West Coast the biofuel gained 2.5 cents, or 1 percent, to $2.58.

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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