Ethanol Tumbles Against Gasoline as Improved Returns Lift Output

Ethanol declined against gasoline on speculation higher returns for making the fuel from corn will spur companies to boost output.

The discount, or price difference, widened 5.93 cents to 29.23 cents a gallon at 11:16 a.m. New York time, the largest differential since May 6. An Energy Information Administration report yesterday showed production climbed to a two-week high. The corn crush spread, or the difference between the cost of a gallon of ethanol and the corn needed to make it, has been above break-even for the longest stretch since 2011, according to data compiled by Bloomberg.

“We’ll probably continue to see that production number creep up here,” said Chris Wilson, an analyst at Atten Babler Risk Management LLC in Galena, Illinois. “With these margins, plants are turning on. We’re starting to increase run rates and capacity.”

Denatured ethanol for June delivery decreased 1.8 cents, or 0.7 percent, to $2.616 a gallon on the Chicago Board of Trade. Futures have gained 21 percent in the past year.

Gasoline for June delivery added 4.13 cents, or 1.4 percent, to $2.9083 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 Falls

Corn prices have eased since reaching a record high during last year’s drought, and that’s decreased production costs for ethanol manufacturers, Wilson said.

One bushel of the grain makes at least 2.75 gallons of ethanol. About 34 percent of this year’s corn crop will be used to make the fuel, the Agriculture Department said in a May 10 report.

Corn for July delivery slipped 9.75 cents, or 1.5 percent, to $6.41 a bushel in Chicago.

The corn crush spread for July was 18 cents, compared with 15 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 output climbed 1.7 percent to 857,000 barrels a day in the week ended May 10, the highest since April 26 and up 11 percent from the record low 770,000 barrels a day in January, the EIA, the Energy Department’s statistical arm, said.

Corn-based ethanol Renewable Identification Numbers for 2013, or RINs, jumped 0.6 percent to 84 cents as of 11:23 a.m. New York time, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, declined 1.1 percent to 90 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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