Ethanol futures advanced a second day in Chicago on concern that negative margins will prompt producers to temper output.
Futures jumped to the highest price in more than three weeks on concern that distillers of the fuel, losing as much as 12 cents on every gallon, according to data compiled by Bloomberg, will reduce production with record inventories.
“Margins have been hit hard by the recent oversupply of ethanol inventory, but some fresh concerns that producers may reduce production in response set off a surprise rally,” said Michael Breitenbach, an analyst and trader at Blue Ocean Brokerage LLC in New York.
Denatured ethanol for March delivery increased 1.8 cents, or 0.8 percent, to $2.211 a gallon on the Chicago Board of Trade, the highest price since Jan. 11. Prices are down 7.8 percent from a year earlier.
Ethanol stockpiles swelled 5.8 percent to a record 20.9 million barrels in the week ended Jan. 27, according to Energy Department data.
The biofuel is blended with gasoline to stretch supply and meet federal mandates.