Ethanol futures advanced for a fourth day in Chicago on speculation that negative profit margins will curtail output and the biofuel’s discount to gasoline will increase demand.
Futures gained a day after an Energy Department report showed production plunged to the lowest in 11 weeks and as ethanol’s discount to gasoline, with which it is blended, expanded to 78.18 cents, more than triple the average for the past year.
“It’s really a dead-cat bounce,” said Ian Jackson, a trader at SCB & Associates LLC in Chicago. “Margins can’t stay negative forever. The discount to gasoline is almost at a dollar.”
Denatured ethanol for March delivery increased 0.7 cent, or 0.3 percent, to $2.231 a gallon on the Chicago Board of Trade, the highest price since Jan. 11. Prices are down 9.2 percent from a year earlier.
In cash market trading, ethanol in New York rose 2.5 cents, or 1.1 percent, to $2.29 a gallon and in Chicago the additive gained 2 cents, or 0.9 percent, to $2.19, according to data compiled by Bloomberg.
Ethanol on the West Coast jumped 1.5 cents, or 0.7 percent, to $2.315 a gallon and in the U.S. Gulf the biofuel added 1 cent, or 0.5 percent, to $2.255.
Production in the U.S. fell 1.7 percent to 923,000 barrels a day last week, the steepest decline since Jan. 6, and the lowest level since Nov. 18, an Energy Department report showed today.
Distillers are losing 9 cents per gallon of ethanol, based on current prices for corn and the biofuel and assuming a bushel of corn generates 2.75 gallons of ethanol, according to data compiled by Bloomberg. Ethanol is blended into gasoline to stretch supply and meet federal mandates.