Ethanol’s Discount to Gasoline Widens as Lower Corn Lifts Output

Ethanol weakened against gasoline on speculation that the cheapest corn in more than nine months will boost returns and spur higher production of the biofuel.

The spread, comparing front-month contracts, expanded 5.45 cents to 72.69 cents a gallon at 10:30 a.m. New York time. Last week the Agriculture Department reported that farmers will plant 97.282 million acres of corn this year, the most since 1936, and that inventories on March 1 were 8.1 percent bigger than analysts forecast. Ethanol is made from the grain in the U.S.

“It’s going to improve margins,” said Jason Ward, an analyst at Northstar Commodity Investments LLC in Minneapolis. “That would lead you to believe you’ll see more production. It’s one of the best pieces of news you’ve had in a long time for the ethanol producer.”

Denatured ethanol for May delivery dropped 6.4 cents, or 2.6 percent, to $2.369 a gallon on the Chicago Board of Trade. The April contract, which expires April 3, fell 4 cents to $2.411 a gallon.

Gasoline futures for May delivery slipped 0.95 cents, or 0.3 percent, to $3.0959 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Ethanol producers have navigated poor returns after drought in the U.S. sent corn prices to a record in August. At least 20 ethanol plants idled output in response to the higher costs, according to data from the Renewable Fuels Association in Washington.

Corn Stockpiles

Domestic inventories of corn on March 1 totaled 5.399 billion bushels, the Agriculture Department report showed, compared to analysts’ estimates for 4.995 billion.

Corn for May delivery slumped 42 cents, or 6 percent, to $6.5325 a bushel in Chicago, the lowest level since June 28. One bushel makes at least 2.75 gallons of ethanol.

The corn crush spread, representing gains or losses from turning corn into ethanol and based on May contracts, was minus 0.6 cent a gallon, compared with minus 10 cents March 28.

The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

Valero Energy Corp. (VLO), the third-biggest U.S. ethanol producer, said March 22 that it resumed output at a distillery in Linden, Indiana, because of better returns to make the biofuel.

To contact the reporter on this story: Mario Parker in Chicago at mparker22@bloomberg.net

To contact the editor responsible for this story: Bill Banker at bbanker@bloomberg.net

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