Ethanol Narrows Against Gasoline as Corn Prices Curtail Output

Ethanol narrowed against gasoline as higher corn prices sent production rates to record lows for this time of year.

The spread, or price difference, shrank by 3.17 cents to 22.64 cents a gallon at 10:28 a.m. New York time after ethanol production dropped 12 percent from a record 963,000 barrels a day in December 2011, according to the Energy Information Administration data. Corn stockpiles on Aug. 31, before this year’s harvest, will be the lowest relative to consumption since 1995, Agriculture Department data show.

“Production has been low and corn’s been hanging in there, too,” said Joshua Bailer, managing director of Next Generation Commodities, the biofuels division of Atlas Commodities LLC, in Miami. “With corn prices where they are, it makes sense.”

Denatured ethanol for June delivery fell 1.8 cents, or 0.7 percent, to $2.609 a gallon on the Chicago Board of Trade. Futures have gained 23 percent in the past year.

Gasoline for June delivery tumbled 4.97 cents, or 1.7 percent, to $2.8354 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Supply Report

The USDA plans to release its World Agricultural Supply and Demand Estimates today at noon in Washington.

Ethanol companies across the corn-rich U.S. Midwest shuttered operations or tempered output after drought last summer reduced yields for the grain and skyrocketed costs to make the biofuel.

Corn for July delivery slid 5.75 cents, or 0.9 percent, to $6.43 a bushel in Chicago.

The corn crush spread for July was 15 cents a gallon, up from 14 cents yesterday and 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.

Ethanol is blended with gasoline to meet federal mandates. Compliance with the law is tracked by Renewable Identification Numbers, or RINs, certificates attached to each gallon of biofuel. Refiners can keep the RINs to show adherence to the law or they can trade them.

Corn-based ethanol RINs were unchanged at 80.5 cents as of 8:27 a.m. in New York, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol gained 1.6 percent to 94.5 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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