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Ethanol’s Discount to Gasoline Expands Third Day on Grain Report

Dec. 11 (Bloomberg) -- Ethanol’s discount to gasoline widened for a third day after a government report that increased the outlook for wheat supplies raised concern that demand for corn as a livestock feed would decline.

Ethanol dropped after the Agriculture Department raised its estimate of global wheat production and U.S. inventories. About 42 percent of the corn crop will be consumed by ethanol, according to the agency. Ethanol in the U.S. is made using corn.

“The big thing was the wheat carryout being increased,” said Garret Toay, founder of Toay Commodity Futures Group LLC in Clive, Iowa.

The difference between ethanol and gasoline expanded to 27.15 cents a gallon from 24.81 cents yesterday, based on futures settlement prices. The spread has averaged 61.69 cents this year, according to data compiled by Bloomberg.

Denatured ethanol for January delivery fell 1.1 cents, or 0.5 percent, to $2.339 a gallon on the Chicago Board of Trade, the lowest price since Nov. 15. Futures have climbed 6.2 percent this year.

Ethanol has fallen 2.9 percent this month on ample supplies, Toay said.

Stockpiles of the fuel in the week ended Nov. 30, climbed to 19.3 million barrels, the highest level since July 27, while production gained 4 percent to 835,000 barrels a day, the highest since June 29.

‘You’re not seeing a drawdown that we’d like to see,” Toay said. “It seems like it’s a one-for-one, give or take. Every time we increase production we see a build in stocks.”

Spot Prices

In cash market trading, ethanol in New York tumbled 7.5 cents, or 3 percent, to $2.45 a gallon and in Chicago the additive decreased 7.5 cents, or 3.1 percent, to $2.35, data compiled by Bloomberg shows.

Ethanol in the U.S. Gulf slipped 6.5 cents, or 2.6 percent, to $2.415 a gallon and on the West Coast the biofuel lost 4 cents, or 1.6 percent, to $2.475.

Gasoline for January delivery rose 1.24 cents, or 0.5 percent, to settle at $2.6105 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Corn for March delivery fell 2 cents, or 0.3 percent, to $7.28 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Based on March contracts for corn and ethanol, producers are losing 30 cents on each gallon of the fuel made, unchanged from 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.

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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