Ethanol Rises Versus Gasoline as Motor Fuel Slumps, Corn Gains

Ethanol’s discount to gasoline fell the most in more than three months as the motor fuel slumped and corn rose.

The spread narrowed 10.45 cents to 58.56 cents a gallon, the smallest difference since Feb. 4 and the biggest one-day contraction since Nov. 7. Gasoline fell to the lowest level in a month, while corn rose to the highest price since Feb. 8.

“Corn is helping ethanol gain its strength,” said Dan Flynn, a trader at Price Futures Group in Chicago. “Right now we’re pricing it in that it could be a tough year. There are a lot of things out there that seems supportive for the market.”

Denatured ethanol for March delivery advanced 2.5 cents, or 1.1 percent, to $2.396 a gallon on the Chicago Board of Trade, the highest price since Feb. 11. Futures have advanced 9.4 percent this year.

Gasoline for March delivery plunged 7.95 cents, or 2.6 percent, to $2.9816 a gallon on the New York Mercantile Exchange, the steepest decline since Nov. 7 and the lowest price since Jan. 29. The contract covers reformulated gasoline, which is made to be blended with ethanol.

At least 19 ethanol plants have shut since June as drought in the Midwest scorched corn crops and raised production costs, according to the Renewable Fuels Association in Washington. Biofuel Energy Corp. (BIOF) said last week it would keep a Fairmont, Minnesota, ethanol mill closed until this year’s corn harvest.

The Energy Information Administration reported last week that ethanol production was 17 percent lower than the record 963,000 barrels a day in December 2011.

Crush Spread

Corn for March delivery rose 11.5 cents, or 1.7 percent, to $7.05 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

The corn crush spread, representing gains or losses from turning a bushel of corn into ethanol, was minus 17 cents, compared with minus 15 cents yesterday and minus 35 cents on Dec. 31. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

A government mandate calls for U.S. refiners to use 13.8 billion gallons of ethanol this year and 14.4 billion next year.

The U.S. will produce about 13 billion gallons of the fuel this year, short of the government targets, according to the Energy Information Administration’s Feb. 12 Short-Term Energy Outlook.

Using RINs

Refiners will have to draw from a reserve of Renewable Identification Numbers, a mechanism used to help the Environmental Protection Agency to track compliance, to meet the requirements, Bloomberg New Energy Finance said yesterday.

The value of RINs for corn-based ethanol gained 2.3 percent to 44 cents yesterday from Feb. 22. They’ve surged from 7.1 cents on Jan. 7, data compiled by Bloomberg show.

Advanced RINs, which include biodiesel and sugarcane-based Brazilian grade ethanol, fell 1.7 percent to 58.5 cents.

In cash market trading, ethanol rose in the major trading hubs. Ethanol on the West Coast, the most expensive in the country, jumped 4.5 cents to $2.575 a gallon, data compiled by Bloomberg show. The additive increased 2.5 cents to $2.445 on the Gulf Coast; 1 cent to $2.38 in Chicago; and 2.5 cents to $2.505 in New York.

West Coast ethanol’s premium to the Gulf Coast jumped to 13 cents, the highest level in a week. Chicago’s discount to New York Harbor swelled to 12.5 cents, the widest gap since Jan. 30.

Ethanol prices have risen as imports have slowed, according to EIA data.

Spot ethanol in Sao Paulo fetched $2.43 a gallon last week, or 1.4 percent more expensive than today’s futures price, data compiled by Bloomberg show.

Imports have fallen 83 percent to 21,000 barrels a day in the week ended Feb. 15 from a record in October, the Energy Department’s statistical arm 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

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