Ethanol Falls Most in More Than Week as Production Costs Ease

Ethanol futures fell the most in more than a week as production costs for the biofuel eased.

Prices followed corn lower on speculation supply will be more plentiful than expected. The U.S. Agriculture Department said Nov. 9 that the corn crop will total 10.725 billion bushels, up from an October estimate of 10.706 billion. Ethanol is made from the grain in the U.S. and the profit from making the biofuel is referred to as the crush margin.

“Crush margins are a little stronger today,” said Michael Breitenbach, an analyst and trader at Blue Ocean Brokerage LLC in New York.

Denatured ethanol for December delivery fell 5.4 cents, or 2.3 percent, to $2.327 a gallon on the Chicago Board of Trade, the steepest drop since Nov. 2. Futures have risen 5.6 percent this year.

In cash market trading, ethanol in New York dropped 3 cents, or 1.2 percent, to $2.47 a gallon and in Chicago the additive decreased 2 cents, or 0.8 percent, to $2.36, data compiled by Bloomberg show.

Ethanol in the U.S. Gulf fell 1 cent, or 0.4 percent, to $2.43 a gallon and on the West Coast the biofuel was unchanged at $2.545.

Corn for December delivery slumped 20.75 cents, or 2.8 percent, to $7.18 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Ethanol Spread

Based on December contracts for corn and ethanol, producers are losing 28 cents on each gallon of the fuel made, down from 36 cents on Nov. 9, excluding the revenue that can be made from the sale of dried distillers’ grains, a byproduct of ethanol production that can be fed to livestock, data compiled by Bloomberg show.

The “margin environment is still pretty terrible,” Breitenbach said.

At least 10 plants have been idled after drought in the U.S. damaged corn crops and raised prices to a record $8.49 a bushel on Aug. 10.

Ethanol has also been hampered by sluggish gasoline demand. Consumption of gasoline in the week ended Nov. 2 fell the most in Energy Department data since Jan. 7, 2005, after Hurricane Sandy shut filling stations and kept drivers off the road.

“Gasoline demand continues to be pretty weak,” Breitenbach said. Therefore, demand for ethanol to blend into gasoline is lower, he said.

Gasoline Discount

Gasoline for December delivery fell 2.29 cents, or 0.9 percent, to $2.6763 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, which is made to be blended with ethanol before delivery to filling stations.

Ethanol’s discount to the motor fuel climbed to 34.93 cents a gallon from 31.82 cents Nov. 9, boosting the biofuel’s luster for refiners to use more in an effort to pocket the spread between the two. Gasoline traded at a premium of 99.8 cents a gallon to ethanol as recently as Sept. 28.

The U.S. Environmental Protection Agency may announce a decision as early as tomorrow on whether to maintain, reduce or suspend the country’s ethanol mandate, Larry De Maria, a New York-based analyst for William Blair & Co. said in a note today.

A bipartisan group of lawmakers asked the Obama administration to halt or lower the requirement for the U.S. to use 13.2 billion gallons of ethanol this year and 13.8 billion next year because of the drought-damaged corn crop.

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