Ethanol’s Discount to Gasoline Widens as Corn Prices Plunge

Ethanol’s discount to gasoline widened as corn fell to a three-year low, signaling lower production costs to make the biofuel.

The spread, or price difference, expanded 0.74 cent to 93.96 cents a gallon after corn, the primary ingredient in U.S.- made ethanol, touched the lowest level since August 2010. One bushel makes at least 2.75 gallons of the fuel additive.

“The falling corn prices will support ethanol margins,” said Shawn McCambridge, senior grain analyst for Jefferies Bache LLC in Chicago.

Denatured ethanol for November delivery slipped 2.5 cents, or 1.5 percent, to $1.671 a gallon on the Chicago Board of Trade. The October contract, which expires Oct. 3, fell 4 cents, or 2.1 percent, to $1.91.

Gasoline for November delivery dropped 1.76 cents, or 0.7 percent, to $2.6106 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Prices for the motor fuel sank on concern that the economy will weaken and demand will decline as the U.S. government begins its first partial shutdown in 17 years.

Corn stockpiles in the U.S., the world’s biggest grower, totaled 824 million bushels, down from 989 million a year earlier, the Agriculture Department said yesterday. Analysts surveyed by Bloomberg predicted 694 million.

Corn Prices

Corn for December delivery fell 2.5 cents, or 0.6 percent, to settle at $4.39 a bushel in Chicago. It reached an intraday low of $4.3525. The December corn crush spread of corn to ethanol was 1 cent, unchanged from yesterday.

Ethanol production has averaged 835,000 barrels a day through Sept. 20, down 4.7 percent from the same period in 2012, data from the Energy Information Administration show. Stockpiles of the biofuel were 15.6 million barrels, 19 percent lower than a year ago.

Imports of the biofuel have averaged 22,000 barrels a day this year through Sept. 20, up from 21,000 barrels a day the same period in 2012, said the EIA, the Energy Department’s statistical arm.

Ethanol is part of U.S. plans to reduce dependence on fossil fuels. The government maintains compliance with consumption targets with Renewable Identification Numbers, or RINs, tracking certificates attached to each batch of biofuel. They can be traded among refiners and later submitted to the Environmental Protection Agency.

RINs Prices

Corn-based RINs rose 2 cents to 44 cents, while advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, gained 2 cents to 53 cents, according to data compiled by Bloomberg.

In cash market trading, ethanol tumbled 12.5 cents to $2.275 a gallon in New York, 9 cents to $2.265 on the West Coast, 7.5 cents to $2.375 on the Gulf Coast and 6 cents to $2.31 a gallon in Chicago, data compiled by Bloomberg show.

Chicago’s premium to New York was 3.5 cents, compared with a discount of 3 cents yesterday, while the West Coast’s deficit to the Gulf widened 1.5 cents to 11 cents.

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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