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Ethanol Strengthens Against Gasoline as Corn Stops Decline

Ethanol strengthened against gasoline as corn halted its slide, signaling higher production costs for the biofuel.

The spread, based on the May gasoline and ethanol contracts, contracted 7.36 cents to 70.19 cents a gallon at 11:14 a.m. New York time. Corn, which dropped 13 percent in the past two sessions, was little changed today on speculation the lower prices will attract demand from investors and end-users.

“Ethanol doesn’t seem to want to stray too far away from it,” said Will Babler, a broker at Atten Babler Risk Management LLC in Galena, Illinois. “Corn is the biggest moving part, and you have no incentive to stick your neck out and take on a bunch of excess risk.”

Denatured ethanol for May delivery climbed 1.9 cents, or 0.8 percent, to $2.345 a gallon on the Chicago Board of Trade. The April contract, which expires tomorrow, added 2.4 cents to $2.385 a gallon.

Gasoline futures for May delivery declined 5.46 cents, or 1.8 percent, to $3.0469 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

One bushel of corn makes at least 2.75 gallons of ethanol. The grain surged to a record in August after drought devastated yields, forcing as many as 20 ethanol plants to idle output, according to the Renewable Fuels Association in Washington.

Prices for the grain tumbled a March 28 Agriculture Department report showed domestic inventories of corn on March 1 totaled 5.399 billion bushels, compared to analysts’ estimates for 4.995 billion.

Corn for May delivery was unchanged at $6.4225 a bushel in Chicago. Trading was 79 percent above the 100-day average for the time of day.

The corn crush spread, representing gains or losses from turning corn into ethanol and based on May contracts, was 1 cent a gallon, up from minus 1 cent yesterday. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

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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