Ethanol Drops Against Gasoline on Prospect of Increased Output

Ethanol’s discount to gasoline widened for the third time in four days on speculation that lower corn costs will prompt idled plants to resume production.

The spread, or price difference, expanded 0.32 cent to 31.36 cents a gallon at 11:37 a.m. New York time a day before the Energy Information Administration is to release the latest production and stockpiles figures for the biofuel. Output rose 8.1 percent to 832,000 barrels a day as of April 12 from a record low of 770,000 in the week ended Jan. 25.

“We’re looking for a slight increase in production and a build in stockpiles due to the lower corn prices,” said Terry Reilly, senior commodity analyst at Futures International LLC in Chicago. “It may just take a couple weeks to turn these plants back on.”

Denatured ethanol for May delivery dropped 3.3 cents, or 1.3 percent, to $2.426 a gallon on the Chicago Board of Trade. Prices have gained 11 percent this year.

Gasoline for May delivery declined 2.98 cents, or 1.1 percent, to $2.7396 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

As many as 20 plants idled output after drought in the Midwest ravaged corn crops and devastated profits to make ethanol, according to data from the Renewable Fuels Association in Washington.

Resuming Output

Some companies have resumed output, including Valero Energy Corp. (VLO), which restarted operations at two of its idled mills and another in February. Abengoa SA (ABG) resumed output at its ethanol mills in York and Ravenna, Nebraska, in February after idling them for about four weeks, Christopher Standlee, a spokesman for the company, said today.

Corn for May delivery fell 1.75 cents, or 0.3 percent, to $6.44 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

The corn crush spread was 8 cents a gallon, down from 11 cents yesterday. That compares to 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.

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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