Ethanol’s Discount to Gasoline Grows as Corn Harvest Approaches

Ethanol’s discount to gasoline widened on speculation the coming corn harvest will lower costs and allow distilleries to raise production of the biofuel.

The spread, or prices difference, widened 1.67 cents to 83.29 cents a gallon at 11:09 a.m. New York time as rain in the Midwest may aid crops that the U.S. Agriculture Department this month predicted will reach a record. One bushel of corn makes at least 2.75 gallons of the renewable fuel.

“We are on the tail end of the corn crop,” said Mike Blackford, a consultant at Intl FCStone in Des Moines, Iowa. “We’re starting to move into the regular new-crop slot. It would still be early to get the harvest, but we’re getting close.”

Denatured ethanol for October delivery fell 1.7 cents, or 0.9 percent, to $1.864 a gallon on the Chicago Board of Trade. Futures have dropped 15 percent this year.

Gasoline for October delivery slipped 0.3 cent to $2.6969 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Blackford said ethanol buyers are only purchasing enough for their immediate needs on speculation that the corn crop will lower future prices.

The November ethanol contract is trading at a 17.4-cent discount to October’s, a phenomenon known as backwardation.

Corn for December delivery added 7.5 cents, or 1.6 percent, to $4.52 a bushel in Chicago. The December crush spread of corn to ethanol was break-even, up from minus 2 cents yesterday. All other crush spreads through 2015 were negative.

Ethanol blender and inputs, a measure of demand, climbed 1 percent last week, the Energy Information Administration said in a Sept. 18 report.

Production fell 1.2 percent to 838,000 barrels a day, the Energy Department’s analytical arm said, while stockpiles decreased 0.6 percent to 16.2 million barrels.

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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