Ethanol’s Discount to Gasoline Narrows as Production Slips

Ethanol’s discount to gasoline narrowed after a government report showed production of the biofuel slipped last week.

The spread, or price difference, contracted 0.9 cent to 86.2 cents a gallon at 12:05 p.m. New York time after the Energy Information Administration said output declined by 2,000 barrels a day to 926,000 barrels, a second consecutive drop and the first two-week slide since Sept. 20.

“Production was down a little bit,” said Mike Blackford, a consultant at INTL FCStone in Des Moines, Iowa. “It doesn’t look like there’s much change. We’re still fairly balanced.”

Denatured ethanol for January delivery rose 1.1 cent, or 0.6 percent, to $1.96 a gallon on the Chicago Board of Trade. Prices have fallen 11 percent this year.

Gasoline for January delivery advanced 0.2 cent to $2.822 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Stockpiles of the gasoline additive gained 0.2 percent to 15.7 million barrels, the highest level since Sept. 13 and the fourth straight week of gains, data from the EIA, the Energy Department’s statistical arm, showed.

Rail Impact

Blackford said ethanol prices are buoyed by robust spot demand caused by increased rail traffic. That mode of transport was up 1.6 percent as of Dec. 21 from a year earlier, according to data from Bloomberg Industries.

Ethanol companies aren’t able to produce as much as they would like because trains are behind schedule, Blackford said.

In cash market trading, ethanol in New York increased 1 cent to $2.31 a gallon, lost 4 cents to $2.21 in Chicago and dropped 1.5 cents to $2.305 on the Gulf Coast, data compiled by Bloomberg show. On the West Coast, ethanol was unchanged at $2.60 a gallon.

Corn futures for March delivery added 0.25 cent to $4.2675 a bushel on the Chicago Board of Trade. The grain has plunged 39 percent this year.

The corn crush spread, or the difference between the cost of corn and the price of ethanol, was 21 cents, up from 20 cents yesterday, according to data compiled by Bloomberg.

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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