Ethanol Gains on Speculation Demand Will Rise for Holiday

Ethanol futures rose for a fourth straight session as production fell ahead of the holidays, when driving typically picks up for year-end traveling.

Ethanol advanced 4.4 percent, narrowing the discount to gasoline by 3.72 cents to 83.81 cents. Production in the U.S. dropped 1.7 percent to 928,000 barrels a day last week after reaching a 23-month high of 944,000 barrels the previous week, according to data from the Energy Information Administration.

“There were doubts that the market would be able to sustain production levels seen in the previous EIA report,” said Sean Wever, a biofuels broker at Green Key Markets LLC in Chicago. “In addition to that, the market is expecting increased demand as refiners typically ramp up activity in anticipation of increased driving during the Christmas holiday.”

Denatured ethanol for January delivery gained 8 cents to settle at $1.902 a gallon on the Chicago Board of Trade. Prices advanced the most since Dec. 6. The weekly gain is 7.8 percent.

Ethanol refinery and blender inputs, a measure of demand, rose to 827,000 barrels a day in the past week, up from 826,000 barrels previously, data from the EIA showed.

Gasoline for January delivery climbed 4.28 cents, or 1.6 percent, to close at $2.7401 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Crush Spread

Corn for March delivery was up 5.5 cents, or 1.3 percent, to $4.305 a bushel in Chicago. The corn crush spread, or the difference between the cost of corn and the price of a gallon of ethanol, was 14 cents, up from 10 cents yesterday. Ethanol is made mostly from corn in the U.S., with one bushel making at least 2.75 gallons of the fuel.

Distillers failed to keep increasing production amid high crush margins because they were running above nameplate capacity and having trouble distributing the finished product, Wever said.

“Rail cars and trucks are tight right now,” he said.

The highest crush margins in four years and rising prices for by-products of the distillation process are prompting companies to restart plants, said Renan Pimenta, an analyst for Intl FCStone Inc. based in Campinas, Brazil. Green Plains Renewable Energy Inc. (GPRE), the fourth-largest U.S. ethanol maker, will restart its Fairmont, Minnesota-plant by the end of next week, Jim Stark, a spokesman for the Omaha, Nebraska-based company said today in an e-mail.

“Both ethanol and dried distillers’ grains are doing well and contributing to margins,” Pimenta said.

Distillers Grains

Dried distillers’ grains, the co-product from ethanol making used in animal feed, rose to $214.50 a metric ton on Dec. 13, the highest since Sept. 13, data from the U.S. Department of Agriculture showed.

Ethanol consumption is tracked by Renewable Identification Numbers, certificates attached to each gallon that are submitted to the Environmental Protection Agency and that can be traded among refiners.

Corn-based-ethanol RINs declined 1 cent to 29 cents, while advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, advanced 1.5 cents to 30 cents, data compiled by Bloomberg show.

In cash market trading, ethanol retreated 3 cents to $2.25 a gallon in New York, data compiled by Bloomberg show. It added 9 cents to $2.185 in Chicago, 9 cents to $2.285 on the Gulf Coast and 13.5 cents to $2.49 on the West Coast.

New York’s premium to Chicago narrowed 12 cents to 6.5 cents while the Gulf’s discount to the West Coast widened 4.5 cents to 20.5 cents.

To contact the reporter on this story: Lucia Kassai in Houston at lkassai@bloomberg.net

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

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