Ethanol Loses Versus Gasoline as Corn Falls on Higher Planting

Ethanol’s discount to gasoline narrowed on speculation that dry, warm weather in the U.S. Midwest led to an increase in corn planting, cutting costs for the biofuel’s feedstock.

The spread, or price difference, expanded 0.27 cent to 23.86 cents a gallon as weather deemed favorable may have helped farmers put machines in the fields to make progress toward planting the 97.28 million acres, the most since 1936, predicted by the Agriculture Department. One bushel of the grain makes at least 2.75 gallons of ethanol.

“You always see ethanol follow corn prices,” said Terry Reilly, senior commodity analyst at Futures International LLC in Chicago. “Even though ethanol is down, the weakness in corn can be good for margins.”

Denatured ethanol for June delivery fell 0.4 cent to $2.667 a gallon on the Chicago Board of Trade. The futures have gained 22 percent this year.

Gasoline for June delivery slipped 0.13 cent to $2.9056 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Ethanol is made mostly from corn in the U.S., compared with sugarcane in Brazil. The worst drought since the 1930s last year pushed prices for the grain to a record and forced biofuel companies to temper output or idle operations.

Corn Declines

Corn for July delivery fell 3.25 cents, or 0.5 percent, to $6.495 a bushel in Chicago.

The corn crush spread for July was 18 cents, up from 17 cents on May 17. 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.

“Margins look pretty good for most producers,” Reilly said.

Ethanol production in the week ended May 10 averaged 857,000 barrels a day, the highest level since April 26 and down 5.2 percent from a year earlier, data from the Energy Information Administration show.

Below-average output has helped deplete stockpiles of the fuel. Inventories that week slid 2.5 percent to 16.4 million barrels, the lowest since Dec. 3, 2010, the Energy Department’s statistical agency said in a May 15 report.

Reilly said ethanol’s discount to gasoline, demand from the summer driving season, which starts this weekend, and cheaper corn may help spur an increase in production.

Ethanol RINs

Corn-based ethanol Renewable Identification Numbers for 2013, or RINs, rose 1.8 percent to 86.5 cents at 4 p.m. New York time, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, gained 4.4 percent to 94 cents.

In cash market trading, ethanol in the U.S. Gulf decreased 6 cents to $2.77; in Chicago the additive lost 3 cents to $2.655; on the West Coast prices dropped 1 cent to $2.805; and in New York the biofuel slipped 0.5 cent to $2.805 a gallon, data compiled by Bloomberg show.

The U.S. hasn’t imported any of the fuel since April 19, EIA data show.

Ethanol-blended gasoline made up 95 percent of the total U.S. gasoline pool in the week ended May 10, down from a record 97 percent the previous week, according to EIA.

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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