Ethanol’s Discount to Gasoline Narrows on Feedstock Concerns

Ethanol’s discount to gasoline shrank from the widest level this year on speculation that a smaller corn supply will damp production of the biofuel.

The spread, or the price difference, between the two fuels narrowed 2.99 cents to 78.65 cents a gallon. Ethanol production has slumped for two consecutive weeks to the lowest level since May 3, according to the Energy Information Administration, while the Agriculture Department forecast that corn inventories before the September harvest may be 26 percent below last year.

“The perception about what could happen in September may be affecting what’s happening now,” said Mark Ruyack, a manager at StarFuels Inc. in Jupiter, Florida. “It seems like supply is a little tight.”

Denatured ethanol for August delivery slipped 0.2 cent to $2.226 a gallon on the Chicago Board of Trade. Prices have climbed 1.6 percent this year.

Gasoline for August delivery fell 3.19 cents, or 1 percent, to $3.0125 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 mixed with gasoline as part of U.S. plans to reduce dependence on foreign oil. A 2007 law, the Renewable Fuels Standard, requires refiners to use 13.8 billion gallons of the additive this year.

The fuel is made from corn in the U.S., with one bushel making at least 2.75 gallons of the additive.

Corn Supply

Ruyack said ethanol companies may be hesitant to sell some of their supply because of concern that corn may be hard to obtain before the harvest.

Ethanol stockpiles are down 9.2 percent to 17.3 million barrels from a year earlier, data from the EIA, the Energy Department’s research arm, show.

Production fell 2.6 percent to 853,000 barrels a day in the week ended July 19, EIA data show, down 3.6 percent from this year’s high in the week ended June 21.

Corn for September delivery decreased 2.75 cents to $4.8925 a bushel in Chicago. The more-actively traded December contract slipped 2.75 cents to $4.7325.

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 35 cents compared with 34 cents July 26.

Tracking certificates called Renewable Identification Numbers, or RINs, are used by the government and refiners to monitor compliance with the energy law.

RINs Prices

Corn-based-ethanol RINs dropped 2 cents today to 97 cents, while advanced RINs, which cover Brazilian sugarcane-based ethanol and biodiesel, were unchanged at $1, data compiled by Bloomberg show.

In cash market trading, ethanol was unchanged in the U.S. Gulf at $2.285 a gallon and on the West Coast at $2.535, according to data collected by Bloomberg. In New York the additive jumped 5 cents to $2.34 and in Chicago the price decreased 0.5 cents to $2.20 a gallon.

West Coast ethanol’s premium to the U.S. Gulf was unchanged at 25 cents, while Chicago’s discount to New York Harbor expanded by 5.5 cents to 14 cents, the widest differential since May 20.

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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