Ethanol’s Discount to Gasoline Widens on Signs of Higher Output

Ethanol’s discount to gasoline widened as plants increased production rates to take advantage of higher returns to make the biofuel.

The spread, or price difference, swelled 2.63 cents to 50 cents a gallon. Production rates have jumped 12 percent from a record low in January, Energy Information Administration data show. The corn crush spread, or the difference between of ethanol and the corn needed to make it, was 28 cents a gallon after being negative much of the year.

Ethanol is “up a little bit, but it’s certainly lost its luster,” said Jim Damask, a manager at StarFuels Inc. in Jupiter, Florida. “It seems like people have a little bit more to sell. They’re producing it.”

Denatured ethanol for August delivery advanced 1.6 cents, or 0.7 percent, to $2.426 a gallon on the Chicago Board of Trade. Prices have gained 11 percent this year.

Gasoline for August delivery rose 4.23 cents, or 1.5 percent, to $2.926 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 companies battled higher manufacturing costs after last summer’s U.S. drought reduced corn supply. Stockpiles of the biofuel have dropped 24 percent to a record low 15.4 million barrels from a year ago, data from the Energy Department’s research arm show.

Planting Corn

Farmers responded to the drought by planting the most acres of corn this year since 1936, according to U.S. Agriculture Department forecasts. Corn for September delivery climbed 18.5 cents, or 3.5 percent, to $5.5175 a bushel in Chicago. One bushel makes at least 2.75 gallons of the renewable fuel.

“People feel a little more comfortable about the corn situation,” Damask said.

Ethanol production last week averaged 863,000 barrels a day, about 0.7 percent higher than the same period a year earlier, EIA data show.

A 2007 energy law requires the U.S. to use 13.8 billion gallons of the additive this year. Adherence to that law is tracked by certificates attached to each gallon known as Renewable Identification Numbers, or RINs. Refiners can keep the credits to show compliance or trade them among each other.

Corn-based RINs fell 1 cent to $1.03, while advanced RINs declined 3 cents to $1.09, data compiled by Bloomberg show.

Ethanol prices are above average for this time of year and traders are awaiting tomorrow’s EIA report to determine whether the higher prices are attracting Brazilian imports, said Justin Dirico, manager of the biofuels desk at Eagle Energy Brokers LLC in New York.

The U.S. didn’t make any foreign purchases of the biofuel from the week ended June 28, from 38,000 barrels a day the previous 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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