Ethanol Weakens as Dry Midwestern Weather Boosts Corn Planting

Ethanol weakened versus gasoline on speculation that dry weather in the Midwest helped corn farmers plant more of the biofuel feedstock.

The spread, or price difference, based on June contracts expanded 7.83 cents to 34.47 cents a gallon, as corn plunged on forecasts for weather considered favorable for farmers to move equipment into fields. One bushel of corn makes at least 2.75 gallons of ethanol. Renewable Identification Numbers declined.

“As far as the corn situation, a lot of farmers were able to get out in the fields over the weekend,” said Phil Flynn, senior market analyst for Price Futures Group in Chicago. “We had wonderful weather. That’s putting some downward pressure on ethanol.”

Denatured ethanol for June delivery slipped 3.8 cents, or 1.5 percent, to $2.521 a gallon on the Chicago Board of Trade.

Gasoline for June delivery rose 4.03 cents to $2.8657 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

About 42 percent of this year’s corn crop will go toward ethanol production, the Agriculture Department said in its April 10 World Agricultural Supply and Demand Estimates report.

Companies across the Midwest cut output or idled plants after last summer’s drought boosted corn prices to a record and wiped out returns on making the biofuel.

Ethanol Production

Production averaged 857,000 barrels a day in the week ended April 26, 4.1 percent lower than a year earlier and 11 percent below the record 963,000 barrels a day in December 2011, data from the Energy Information Administration show.

Corn for July delivery dropped 24.75 cents, or 3.7 percent, to $6.365 a bushel in Chicago.

The corn crush spread for July was 11 cents a gallon. That compares with 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.

About 12 percent of the crop was planted as of yesterday, up from 5 percent a week earlier, the Agriculture Department said in a report today.

Below-normal production rates have left ethanol stockpiles at the lowest levels for this time of year in records going back to June 2010, data compiled by Bloomberg show.

Stockpiles fell 3.2 percent to 17 million barrels in the week ended April 26, the lowest since November 2011, according to data from the Energy Department’s analytical arm.

Fuel Blend

The fuel is blended with gasoline to stretch supply and meet federal mandates. A 2007 energy law requires the U.S. to use 13.8 billion gallons of the renewable fuel this year and 14.4 billion next year.

Compliance with the law is tracked by Renewable Identification Numbers, or RINs, certificates attached to each gallon of biofuel that refiners can submit to the government or trade.

The value of corn-based ethanol RINs increased 2 percent to 77.5 cents, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol increased 4.2 percent to 87.5 cents.

Ethanol-blended gasoline made up about 96 percent of the total U.S. gasoline supply in the week ended April 26, up from 93 percent the previous week and the most since April 5, EIA said in May 1 report.

Ethanol Imports

U.S. companies didn’t make any foreign purchases of the fuel that week, after importing 39,000 barrels a day of ethanol in the week ended April 19, EIA data show.

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

In cash market trading, ethanol on the West Coast dropped 4.5 cents to $2.775 a gallon; in the U.S. Gulf the additive lost 1 cent to $2.71; in Chicago the fuel fell 1 cent to $2.65; and in New York the biofuel declined 3 cents to $2.77 a gallon, data compiled by Bloomberg show.

West Coast ethanol’s premium over the Gulf slipped 3.5 cents to 6.5 cents, the tightest since Jan. 16, while Chicago’s discount to New York Harbor contracted 2 cents to 12 cents, the smallest in a week.

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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