Ethanol’s discount to gasoline narrowed to the lowest level in more than two weeks on speculation that higher corn prices will curtail supply and on optimism for increased demand.
The grain-based additive was 54.83 cents below the motor fuel, which includes reformulated gasoline known as RBOB, based on prompt-month contracts for both commodities. That was down from 54.89 cents yesterday and the smallest gap since Dec. 24.
“The spread to RBOB has widened,” said Ian Jackson, a trader at SCB & Associates LLC in Chicago. “I wouldn’t be surprised to see guys take advantage.”
Denatured ethanol for February delivery rose 1.5 cents, or 0.7 percent, to settle at $2.245 a gallon on the Chicago Board of Trade, the highest level since Dec. 18. Prices have fallen 0.8 percent in the past year.
In cash market trading, ethanol was unchanged in New York at $2.285 a gallon, in Chicago at $2.20, in the U.S. Gulf at $2.25 and on the West Coast at $2.335 a gallon, data compiled by Bloomberg show.
Gasoline for February delivery advanced 1.44 cents, or 0.5 percent, to $2.7933 a gallon on the New York Mercantile Exchange. The contract covers RBOB, which is made to be blended with ethanol before delivery to filling stations.
Corn for March delivery gained 4.5 cents, or 0.6 percent, to $6.9875 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 27 cents on each gallon of the fuel made, unchanged from yesterday, according to data collected by Bloomberg. The figures exclude the revenue that can be made from the sale of dried distillers’ grains, a byproduct of ethanol production that can be fed to livestock.
Corn inventories are dropping at the fastest pace in 17 years because of drought in the U.S. Midwest. Stockpiles on Dec. 1 were 15 percent lower than a year earlier at 8.22 billion bushels, the smallest post-harvest level since 2003, according to the average of 26 analyst estimates compiled by Bloomberg. The Agriculture Department releases its supply report tomorrow.
Ethanol companies have tempered output 13 percent in the past year to 826,000 barrels a day as of last week, according to data from the U.S. Energy Information Administration, the analytical arm of the Energy Department.