Ethanol’s Discount to Gasoline Widens Third Day as Costs Ease

Ethanol’s discount to gasoline widened for a third day to the largest differential since September as lower corn prices eased the cost of manufacturing the biofuel.

The spread expanded by 7.62 cents to 79.2 cents a gallon after the most active corn contract touched the lowest level since Oct. 5, 2010. The corn crush spread, or the cost difference between a gallon of ethanol and the corn needed to make it, based on September contracts, was 33 cents, compared with losses most of last year.

“If they’re paying less for the corn, they don’t have to get as much for their ethanol,” said Jerrod Kitt, an analyst at Linn Group in Chicago.

Denatured ethanol for August delivery fell 11.4 cents, or 4.9 percent, to $2.225 a gallon on the Chicago Board of Trade. Prices have gained 1.6 percent this year.

Gasoline for August delivery declined 3.78 cents, or 1.2 percent, to $3.017 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 for September delivery decreased 12.25 cents, or 2.4 percent, to $4.96 a bushel in Chicago. The more actively traded December contract slipped 1.5 cents to $4.7875.

Kitt said higher imports this year also have bolstered supply. An Energy Information Administration report yesterday showed the U.S. made foreign purchases of the biofuel for a third week last week and that imports have averaged 21,000 barrels a day, double the rate a year earlier.

RINs Drop

Ethanol also plunged as the value for Renewable Identification Numbers, the tracking certificates the government and refiners use to check compliance with consumption mandates, tumbled on concern the targets may be reduced, Kitt said.

Corn-based ethanol RINs slumped 18 percent to $1.03, the steepest drop since March, while advanced RINs, which cover Brazilian sugarcane-based ethanol and biodiesel, were unchanged at $1.30, data compiled by Bloomberg show.

Stockpiles of the fuel climbed 4.1 percent last week to 17.3 million barrels, the most since April 19, according to yesterday’s report from the EIA, the Energy Department’s research arm. Ethanol production slumped 2.6 percent to 853,000 barrels a day, the lowest since May 3.

Ethanol-blended gasoline made up 92 percent of the total U.S. gasoline pool, little changed from the previous week, EIA said.

In cash market trading, ethanol sank 9 cents to $2.345 a gallon in the Gulf, 8.5 cents to $2.26 in Chicago, 6.5 cents to $2.385 in New York and 4.5 cents to $2.575 a gallon on the West Coast, data compiled by Bloomberg show.

West Coast ethanol’s premium to the Gulf expanded by 4.5 cents to 23 cents, the widest since April 18, while Chicago’s discount to New York Harbor gained 2 cents to 12.5 cents.

To contact the reporter on this story: Mario Parker in Chicago at mparker22@bloomberg.net

To contact the editor responsible for this story: Bill Banker at bbanker@bloomberg.net

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