Ethanol’s Discount to Gasoline Widens as Production Rates Climb

Ethanol’s discount to gasoline widened after a government report showed production of the biofuel climbed to the highest level in 10 months.

The price difference, or spread, expanded 0.13 cent to 26.16 cents a gallon on Energy Information Administration data showing ethanol production last week was the most since June 29. Gasoline surged after the Labor Department said applications for unemployment benefits fell to the least in five years last week. Corn-based Renewable Identification Numbers declined.

“Run rates are up, certainly at the highest this year,” said Will Babler, a broker at Atten Babler Risk Management LLC in Galena, Illinois.

Denatured ethanol for June delivery rose 6 cents, or 2.4 percent, to $2.519 a gallon on the Chicago Board of Trade. The May contract, which expires tomorrow, advanced 11.4 cents to $2.713 a gallon.

Gasoline for June delivery gained 6.13 cents, or 2.3 percent, to $2.7806 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Corn is the primary feedstock used to produce ethanol in the U.S., with one bushel distilling into at least 2.75 gallons of the renewable fuel.

Drought in the Midwest last summer scorched crops and inflated production costs, prompting companies to cut operations.

Corn Futures

Corn for May delivery climbed 15.75 cents, or 2.3 percent, to $6.975 a bushel in Chicago.

The corn crush spread was 18 cents a gallon, up from 12 cents yesterday, the highest since Dec. 2, 2011. The spread was 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.

Corn-based ethanol RINs decreased 1.3 percent to 76.5 cents, the first drop since April 24, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcanes ethanol, rose 1.2 percent to 85 cents.

RINs are certificates attached to each gallon of biofuel, used by the government to track compliance with mandates for blending with petroleum. Refiners can keep RINs or trade them.

Ethanol stockpiles fell 3.2 percent last week to 17 million barrels a day, down 23 percent from a year earlier, the EIA, the Energy Department’s statistical arm, said in the report yesterday.

Output Outlook

Babler said the higher returns to make the fuel from corn are enticing companies to increase output.

Production climbed 0.5 percent to 857,000 barrels a day, up 11 percent from the 770,000 barrels a day in the week ended Jan. 25, the lowest level in records going back to June 2010.

Ethanol-blended gasoline made up about 96 percent of the total U.S. gasoline pool in the week ended April 26, up from 93 percent the previous week and the most since April 5, EIA said yesterday.

U.S. companies made no imports of the fuel last week, down from 39,000 barrels a day the previous week, it said.

Anhydrous ethanol in Sao Paulo cost $2.58 a gallon as of April 26, data compiled by Bloomberg show.

In cash market trading, ethanol rose 12.5 cents to $2.68 a gallon in the Gulf, 4.5 cents to $2.62 in Chicago and 4.5 cents to $2.76 in New York, data compiled by Bloomberg show. On the West Coast, the biofuel slumped 0.5 cent to $2.77 a gallon.

New York Harbor’s premium to Chicago was unchanged at 14 cents while Gulf Coast’s discount to the West Coast narrowed 13 cents to 9 cents.

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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