Ethanol Discount to Gasoline Narrows After No Rain for Corn

Ethanol strengthened against gasoline as corn, the feedstock for the biofuel in the U.S., reached a two-week high on concern that dry weather would reduce the crop.

The spread between the two fuels narrowed by 5.42 cents to 68.43 cents a gallon after little or no rain fell in the Corn Belt region in the 72 hours through dawn today, said Drew Lerner of Kansas-based World Weather Inc.

“Virtually nothing fell over the weekend,” said Jerrod Kitt, an analyst at Linn Group in Chicago. “This is a weather-related rally in corn, and ethanol tends to lag on such events.”

Denatured ethanol for September delivery rose 2 cents, or 0.9 percent, to settle at $2.249 a gallon on the Chicago Board of Trade.

Gasoline for September delivery decreased 3.42 cents, or 1.2 percent, to $2.9333 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 gained 19.5 cents, or 4.1 percent, to $4.9325 a bushel in Chicago. The more actively traded December contract climbed 22 cents to $4.855.

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 46 cents, down from 51 cents Aug. 16, data compiled by Bloomberg show.

Weather Outlook

Several forecasts for the coming week show dry weather continuing over much of the U.S. corn-growing region.

“It looks like although we’re going to get some rain Wednesday night into Thursday, for the next week to 10 days there’s not going to be much rain in the southwestern part of the Corn Belt,” Harvey Freese, founder of Iowa-based Freese-Notis Weather Inc., said by phone today.

In cash market trading, ethanol fell 3.5 cents to $2.50 in New York, 1 cent to $2.335 in Chicago and 1.5 cents to $2.43 on the Gulf Coast, according to data compiled by Bloomberg. The biofuel gained 2.5 cents to $2.495 on the West Coast.

The government uses tracking certificates, known as Renewable Identification Numbers, or RINs, to determine compliance with mandates to use the fuel.

Corn-based ethanol RINs gained 1 cent to 80 cents, the highest price since Aug. 6. Advanced RINs, which cover biodiesel and Brazilian surgarcane-based ethanol, fell 1 cent to 89 cents, data compiled by Bloomberg show.

To contact the reporter on this story: Eliot Caroom in New York at ecaroom@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.