Ethanol Climbs to One-Week High on Signs of Tightening Supply

Ethanol futures in Chicago climbed to the highest price in a week on speculation that plant shutdowns will help soak up a supply glut.

Prices jumped for a third day after producers including Valero Energy Corp., Bunge-Ergon Vicksburg LLC, Abengoa SA and Biofuel Energy Corp. idled output starting in late September, citing poor margins to manufacture the fuel from corn. Ethanol stockpiles, which totaled 18.8 million barrels in the week ended Oct. 19, were 8.5 percent higher than a year ago, Energy Department data showed.

“My feeling is that stocks would be lower,” said Ian Jackson, an ethanol trader at SCB & Associates in Chicago. “Certainly, you’ve seen some tightness in the physical market.”

Denatured ethanol for November delivery rose 2.8 cents, or 1.2 percent, to $2.413 a gallon on the Chicago Board of Trade, the highest price since Oct. 22. Futures have gained 9.5 percent this year.

In cash market trading, ethanol was unchanged in New York at $2.47 a gallon and in the U.S. Gulf at $2.46, data compiled by Bloomberg shows.

Ethanol on the West Coast plunged 7 cents, or 2.8 percent, to $2.46 a gallon and in Chicago the additive increased 1 cent, or 0.4 percent, to $2.395.

Corn Prices

Corn for December delivery gained 4.75 cents, or 0.6 percent, to $7.4175 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Based on December contracts for ethanol and corn, producers are losing about 30 cents on each gallon of the biofuel made, according to data compiled by Bloomberg. That doesn’t include profit from the sale of dried distillers’ grains, a byproduct of ethanol production that can be fed to livestock.

Gasoline for November delivery decreased 2.8 cents, or 1 percent, to $2.7288 a gallon in New York. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Ethanol’s discount to the motor fuel narrowed to 31.58 cents from 37.18 cents yesterday. Gasoline traded at a premium of 99.8 cents to ethanol as recently as Sept. 28.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE