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Ethanol’s Discount to Gasoline Widens From Five-Month Low

Dec. 7 (Bloomberg) -- Ethanol’s discount to gasoline widened from a five-month low on signs of a glut of the grain-based additive.

The biofuel fell to 22.24 cents below gasoline, up from yesterday’s 18.79 cents, the lowest level since July 18. The spread has averaged 62 cents this year, data compiled by Bloomberg show.

“Ethanol’s at a level where it’s not going to gain on gasoline too much more,” said Jason Ward, an analyst at Northstar Commodity Investments LLC in Minneapolis.

Denatured ethanol for January delivery dropped 3.4 cents, or 1.4 percent, to $2.375 a gallon on the Chicago Board of Trade, the lowest since Nov. 16. Prices have climbed 7.8 percent this year.

In cash market trading, ethanol in New York fell 0.5 cent to $2.495 a gallon and on the West Coast the additive slipped 1.5 cents, or 0.6 percent, to $2.52, according to data compiled by Bloomberg.

Ethanol in the U.S. Gulf added 0.5 cent to $2.46 a gallon and in Chicago the biofuel lost 0.5 cent to $2.395.

Gasoline for January delivery gained 0.05 cent to settle at $2.5974. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Corn Falls

Corn for March delivery tumbled 14.25 cents, or 1.9 percent, to $7.3725 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

An Energy Department report released Dec. 5 showed ethanol stockpiles in the week ended Nov. 30 surged 5.4 percent to 19.3 million barrels, the highest since July 27, while production climbed 4 percent to 835,000 barrels a day, the biggest weekly gain since Oct. 14, 2011, and the highest level since June 29.

“If you look at the inventory numbers, I was surprised production jumped so much,” Ward said. “Why would you be producing more at the worst losses of the year? I was a little discouraged by the production numbers.”

Based on March contracts for corn and ethanol, producers are losing 30 cents on each gallon of the fuel made, down from 32 cents yesterday, excluding the revenue that can be pocketed from the sale of dried distillers’ grains, a byproduct of ethanol production that can be fed to livestock, according to data collected by Bloomberg.

Taking the profit from the dried distillers’ grains into account, ethanol mills are losing about 17 cents on each gallon, Ward estimated.

To contact the reporter on this story: Mario Parker in Chicago at mparker22@bloomberg.net

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

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