Ethanol Rises to 11-Week High as Rail Traffic Disrupts Supply

Ethanol futures jumped above $2 to an 11-week high on speculation that rail congestion is exacerbating a U.S. supply imbalance.

Prices gained 5.5 percent a day after the Energy Information Administration said inventories fell 0.5 percent to 15.1 million barrels last week, the lowest level since Oct. 25. Ethanol is mostly shipped by rail, where traffic has climbed 2 percent this year, data from Bloomberg Industries show.

“Some of this is a logistics issue,” said Jerrod Kitt, an analyst at Linn Group in Chicago. “Rail car availability is tight in the Midwest.”

Denatured ethanol for December delivery rose 10.7 cents to $2.047 a gallon, the highest settlement since Sept. 5. The futures have increased 15 percent this month.

Gasoline for December delivery increased 8.08 cents, or 3 percent, to $2.7438 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’s discount to gasoline narrowed 2.62 cents to 69.68 cents a gallon.

“There a bunch of little things that by themselves wouldn’t have much of an effect, but together” are raising prices for ethanol, Kitt said.

Besides lower supplies of the additive, U.S. producers haven’t had to compete with imports, Kitt said. Also, there’s export interest and gasoline demand is higher than a year ago, he said.

International Trade

The U.S. hasn’t made any foreign purchases of ethanol since Sept. 27, the longest streak since 2011, data from the EIA, the Energy Department’s statistical arm, show.

Ethanol is made from corn in the U.S., with one bushel making at least 2.75 gallons of the fuel.

Corn for December delivery advanced 6 cents, or 1.4 percent, to $4.23 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

The corn crush spread, or the price difference between the cost of a bushel of corn and the price of ethanol, was 51 cents, up from 42 cents yesterday and compared with minus 33 cents on Jan. 3, data compiled by Bloomberg show.

“Margins have officially broken bad,” Kitt said. “They’re going nuts. Most people are comparing this to 2011, which is considered” a record year for profitability.

Ethanol production fell 2.5 percent to 904,000 barrels a day in the week ended Nov. 15, EIA data show.

Cash Markets

Supply tightness is most pronounced in the cash market, Kitt said.

In cash market trading, ethanol in Chicago surged 30 cents to $2.675 a gallon; on the West Coast prices gained 29.5 cents to $2.75; in the U.S. Gulf the additive increased 26.5 cents to $2.735; and in New York the biofuel jumped 25 cents to $2.70 a gallon, data compiled by Bloomberg show.

Prices on the West Coast were at a premium to the Gulf of 1.5 cents, after trading at a discount of 1.5 cents yesterday. Chicago traded 2.5 cents below New York Harbor, compared with 7.5 cents a day earlier.

The U.S. Environmental Protection Agency enforces the nation’s biofuel consumption mandate. Tracking certificates called Renewable Identification Numbers, or RINs, are attached to each gallon of the fuel and are traded among refiners and submitted to EPA.

Corn-based ethanol RINs rose 0.5 cent to 19.5 cents, while advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, added 2 cents to 22 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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