Ethanol’s Discount to Gasoline Expands on Higher Pace of Imports

Ethanol’s discount to gasoline expanded on speculation that a higher pace of imports will counter seasonally below-average production rates.

The spread, or price difference, swelled 0.33 cent to 64.5 cents a gallon at 10:52 a.m. New York time, a day after the Energy Information Administration said imports have averaged 22,000 barrels a day this year through the week ended Aug. 16, from 16,000 barrels a day during the same period a year earlier. Output last week fell to a three-week low.

“Good import values over the next few months will help replace some of that production,” said Jerrod Kitt, an analyst at Linn Group in Chicago.

Denatured ethanol for September delivery rose 1.4 cents, or 0.6 percent, to $2.31 a gallon on the Chicago Board of Trade. Futures have gained 5.5 percent this year.

Gasoline for September delivery climbed 1.73 cents, or 0.6 percent, to $2.955 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 production averaged 844,000 barrels a day last week, the least since July 26 and 12 percent lower than the record 963,000 in December 2011, data from the Energy Department’s research division show.

The fuel is made mostly from corn in the U.S. Last summer’s drought that wilted crops has tightened supply of the grain until next month’s harvest.

Corn Prices

Corn for September delivery dropped 3.75 cents, or 0.8 percent, to $4.9425 a bushel in Chicago. The more actively traded December contract slumped 10.5 cents to $4.7275.

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 50 cents, up from 49 cents yesterday, data compiled by Bloomberg show.

Ethanol is derived from sugarcane in Brazil. Anhydrous ethanol in Sao Paolo cost $1.98 a gallon in the week ended Aug. 16, the lowest since May 7, 2010, data compiled by Bloomberg show.

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 fell 2 cents to 73 cents while advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, slipped 1 cent to 81 cents, data compiled by Bloomberg show.

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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