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Ethanol Slides on Speculation Producers Will Cut Output

July 26 (Bloomberg) -- Ethanol fell for a sixth day on speculation that higher corn prices, boosted by drought in the U.S. Midwest, and lower gasoline demand will reduce production of the biofuel.

Futures slipped as the rising price of corn, used to make ethanol in the U.S., has erased profit margins for producers. Gasoline demand over the four weeks ended July 20 was 3.1 percent below a year earlier, according to Energy Department data.

“Corn is way over ethanol and there’s no margin for producers,” said Ian Jackson, a trader at SCB & Associates in Chicago. “A lot of production is closed. Weak longs are exiting the market and futures are getting beat up.”

Denatured ethanol for August delivery fell 3.3 cents, or 1.3 percent, to $2.54 a gallon on the Chicago Board of Trade, the lowest settlement since July 12. Prices have dropped 6.1 percent this week, narrowing the 2012 gain to 15 percent.

Corn for December delivery declined 11.75 cents, or 1.5 percent, to settle at $7.7625 a bushel as rain was expected to ease the drought in parts of the grain-rich Midwest. The price has jumped 24 percent in a month. One bushel makes at least 2.75 gallons of ethanol. Producers would lose 37 cents a gallon on ethanol based on December futures prices.

“Lower corn and more, creating prospects for a better crop and an even lower corn price, would bring down the price of ethanol,” said Sander Cohan, a global transportation fuels analyst and principal with Energy Security Analysis Inc. in Wakefield, Massachusetts.

In cash market trading, ethanol fell 6.5 cents to $2.63 a gallon in New York, 4 cents to $2.525 in Chicago, 3.5 cents to $2.585 on the Gulf Coast and 6.5 cents to $2.735 on the West Coast.

To contact the reporters on this story: Barbara J Powell in Dallas at bpowell4@bloomberg.net

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

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