Ethanol Tumbles Most in More Than Week Against Gasoline on Corn

Ethanol tumbled the most in more than a week against gasoline on speculation that favorable weather has helped farmers sow corn crops, reducing production costs to make the biofuel.

The spread, or price difference, increased 3.39 cents to 23.5 cents a gallon, the widest since May 15, on expectations farmers boosted planting from the 71 percent as of May 19 because of drier weather. They plan to sow the biggest crop since 1936, the Agriculture Department forecasts. One bushel of the grain makes at least 2.75 gallons of ethanol.

“If we get a big crop, that will certainly impact things,” said Will Babler, a broker at Atten Babler Risk Management LLC in Galena, Illinois. “It shows there’s good demand out there.”

Denatured ethanol for June delivery fell 2.3 cents, or 0.9 percent, to $2.604 a gallon on the Chicago Board of Trade. Futures have gained 26 percent in the past year.

Gasoline for June delivery rose 1.09 cents, or 0.4 percent, to $2.839 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 production gained 2.1 percent to 875,000 barrels a day last week, up 11 percent from a record low of 770,000 barrels a day in January, according to the U.S. Energy Information Administration.

More Corn

Farmers are planting more corn as they seek to rebound from last summer’s drought that wilted crops and pushed prices for the grain to a record in August.

Corn for July delivery decreased 4.75 cents, or 0.7 percent, to $6.5725 a bushel in Chicago.

The corn crush spread for July was 8 cents, unchanged from yesterday, compared 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.

Returns have been at or above break-even for the longest stretch since December 2011, data compiled by Bloomberg show.

A 2007 energy law mandates that the U.S. use 13.8 billion gallons of ethanol this year. Compliance is tracked by Renewable Identification Numbers, certificates attached to each gallon of biofuel that are submitted to the government and that can be traded between refiners.

Corn-based ethanol RINs for 2013 were unchanged at 85.5 cents, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, declined 2 cents to 95 cents.

Low Stockpiles

Lower production rates this year have translated into record-low season stockpiles. Inventories last week decreased 1.5 percent to 16.2 million barrels, the lowest since November 2010, the EIA report showed.

Ethanol-blended gasoline made up about 94 percent of the total U.S. gasoline supply, down from 95 percent the previous week and the smallest amount since April 19, EIA data show.

Babler said a late harvest in Brazil, where sugarcane is used to make ethanol, helped to make it less competitive for export to the U.S.

The country hasn’t imported any ethanol since April 19, EIA data show, the longest streak since March 2012.

Anhydrous ethanol in Sao Paulo cost $2.53 a gallon last week, data compiled by Bloomberg show.

In cash market trading, ethanol surged 4.5 cents to $2.815 a gallon on the West Coast, data compiled by Bloomberg show. The additive lost 2 cents to $2.72 in New York Harbor, 2 cents to $2.62 in Chicago and 1 cent to $2.74 on the Gulf Coast.

New York Harbor’s premium to Chicago was unchanged at 10 cents, while the Gulf Coast’s discount to the West Coast swelled 5.5 cents to 7.5 cents, the widest since May 15.

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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