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Ethanol Futures Rise on Higher Costs for Drought-Damaged Corn

Ethanol futures rose to the highest price in more than a week in Chicago on concern that the drought-damaged corn crop will raise costs and curtail output.

Prices gained on speculation U.S. farmers will harvest a smaller crop than the 10.779 billion bushels in an Agriculture Department forecast. One bushel of the grain distills into about 2.75 gallons of ethanol.

“It’s just keeping pace with corn,” said Mike Blackford, a consultant at INTL FCStone Group in Des Moines, Iowa. “In terms of production, we’re going to see some slowdown, especially in September.”

Denatured ethanol for September delivery rose 3.6 cents, or 1.4 percent, to settle at $2.626 a gallon on the Chicago Board of Trade, the highest price since Aug. 9. The futures have gained 19 percent this year.

In cash market trading, ethanol on the West Coast jumped 5 cents, or 1.8 percent, to $2.775 a gallon and in New York the additive climbed 3 cents, or 1.1 percent, to $2.66, according to data compiled by Bloomberg.

Ethanol in the U.S. Gulf added 2 cents, or 0.8 percent, to $2.65 a gallon and in Chicago the biofuel increased 1 cent, or 0.4 percent, to $2.575.

Companies routinely slow output in September to perform seasonal maintenance and as the harvest for the industry’s primary feedstock is under way, Blackford said.

Ethanol production fell 2.8 percent last September and 3.6 percent in September 2010, Energy Department data show.

Corn for December delivery rose 16.5 cents, or 2 percent, to $8.2375 a bushel in Chicago.

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