Ethanol Declines on Signs of Higher Production and Lower Demand

Ethanol futures declined on speculation that cheaper corn will allow producers to boost output as demand wanes in frigid U.S. weather.

Futures fell as a winter storm warning went into effect from North Carolina’s mountains to the Massachusetts coast, hindering travel throughout that region. Separately, the corn crush spread, or the price difference between corn and ethanol, was 26.9 cents a gallon. The spread has been more than 20 cents a gallon all month.

“One negative is the weather, it’s keeping people in their homes,” said Jason Ward, an analyst at Northstar Commodity Investments LLC in Minneapolis. “This is the time of year where you see production go up. Margins are going to be tremendous this year.”

Denatured ethanol for February delivery decreased 0.3 cent to $1.885 a gallon on the Chicago Board of Trade. Futures have fallen 21 percent in the past year.

Gasoline for February delivery added 0.02 cent to $2.6206 a gallon on the New York Mercantile Exchange. The futures cover reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Ethanol’s discount to gasoline widened 0.32 cent to 73.56 cents a gallon.

Corn for March delivery added 1 cent to $4.25 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Ethanol Output

Ethanol production in the week ended Jan. 10 fell 5.6 percent to 868,000 barrels a day, while stockpiles slipped 0.4 percent to 16.1 million barrels, according to the Energy Information Administration.

The slight decline in stockpiles given the steep production rate drop shows that demand for the additive was weak as a result of the weather, Ward said. He said the weather is the only factor holding down ethanol production.

In cash market trading, ethanol declined 31.5 cents to $2.26 on the West Coast, 10 cents to $2.105 on the Gulf Coast and 10 cents to $1.98 in Chicago, data compiled by Bloomberg show. The East Coast price rose 2 cents to $2.375.

West Coast’s premium to the Gulf narrowed 21.5 cents to 15.5 cents. Chicago’s discount to New York Harbor deepened 12 cents to 39.5 cents.

The U.S. tracks compliance with ethanol consumption mandates with Renewable Identification Numbers, certificates attached to each gallon of biofuel that can be traded among.

Corn-based RINs for both 2014 and 2013 held at 31 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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