Ethanol’s Discount to Gasoline Widens on Cheaper Output Costs

Ethanol’s discount to gasoline widened as cheaper corn reduced production costs.

The spread, or price difference, swelled 3.01 cents to 84.34 cents a gallon, based on September contracts for the motor fuel and biofuel. The corn crush spread, or the difference between a bushel of corn and a gallon of ethanol, increased to 41 cents from 37 cents yesterday, data compiled by Bloomberg show.

“We’ve got too much pressure in the corn and that’s spilling over into ethanol,” said Mike Blackford, a consultant at Intl FCStone in Des Moines, Iowa.

Denatured ethanol for September delivery rose 0.2 cent to $2.185 a gallon on the Chicago Board of Trade. The August contract, which expires Aug. 5, slumped 0.5 cent to $2.289.

Gasoline for September delivery increased 3.21 cents, or 1.1 percent, to $3.0284 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 produced from corn in the U.S., with one bushel making at least 2.75 gallons of the renewable fuel.

Refiners are required to use the additive to meet federal mandates. The government attaches Renewable Identification Numbers, or RINs, to each gallon of the biofuel to track compliance.

Corn-based ethanol RINs decreased 3 cents today to $1.06, while advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, dropped 4 cents to $1.11.

Production Slips

The Energy Information Administration said yesterday that ethanol production fell a third week to 832,000 barrels a day in the week ended July 26, while stockpiles sank 4.7 percent to 16.5 million barrels, the lowest level since July 5.

Imports declined 68 percent to 13,000 barrels a day, said the EIA, the Energy Department’s research unit.

Corn for September delivery decreased 11.5 cents, or 2.3 percent, to $4.875 a bushel in Chicago. The more-actively traded December contract tumbled 12 cents to $4.67.

Blackford said supply of the grain could become scarce as the September harvest nears, forcing some ethanol companies to idle operations and perform maintenance.

In cash market trading, ethanol rose 9 cents to $2.465 a gallon in New York, 10 cents to $2.35 in Chicago, 12 cents to $2.44 on the U.S. Gulf Coast and 0.5 cent to $2.485 on the West Coast, data compiled by Bloomberg show.

West Coast ethanol’s premium to the Gulf tightened 11.5 cents to 4.5 cents, the smallest since July 18, while Chicago discount to New York Harbor narrowed 1 cent to 11.5 cents, the thinnest since July 26.

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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