Ethanol’s discount to gasoline futures weakened for a fifth day after supplies of the biofuel climbed to the most in six months in a government report.
Ethanol futures sank a day after the Energy Department said stockpiles reached 20.8 million barrels last week, 18 percent more than a year earlier. Output has dropped 15 percent in 2012.
“It’s pretty ugly and doesn’t look to be getting better,” said Jerrod Kitt, an analyst at Linn Group in Chicago. “For the near-term you just have too much supply and it’s going to take some time to work through that.”
Ethanol’s discount to gasoline expanded to 54.63 cents a gallon, the widest spread since Oct. 10, based on futures settlement prices. It was 52.91 cents yesterday. The differential has averaged 61.23 cents this year.
Denatured ethanol for January delivery declined 0.6 cents, or 0.3 percent, to settle at $2.208 a gallon on the Chicago Board of Trade, the lowest level since June 26. Futures have fallen 8.3 percent this month.
In cash market trading, ethanol in New York fell 6.5 cents to $2.265 a gallon and in Chicago the additive decreased 6.5 cents to $2.185, data compiled by Bloomberg show.
Ethanol on the West Coast slipped 5 cents to $2.315 a gallon and in the U.S. Gulf the biofuel sank 4 cents to $2.275.
Gasoline for January delivery rose 1.12 cents, or 0.4 percent, to $2.7543 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 6.5 cents, or 0.9 percent, to $6.965 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 29 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.
“The market’s signaling that we need some plant shutdowns and to do it,” Kitt said.
If a plant were to be idled now, it probably wouldn’t be able to return to production until spring approaches because of challenges in restarting ethanol mills in cold weather, he said.