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Ethanol’s Discount to Gasoline Expands Second Day on Supply Glut

Jan. 17 (Bloomberg) -- Ethanol’s discount to gasoline expanded for a second day as a stockpile glut kept the biofuel from matching a rally in futures for the motor fuel.

The spread ballooned 5.1 cents a day after the Energy Information Administration said ethanol stockpiles last week climbed 2.6 percent to 20.4 million barrels, the highest level in four weeks, while production sank to 784,000 barrels a day, the lowest level since the Energy Department’s statistical arm began reporting data in June 2010.

“Stocks have been building,” said Will Babler, a broker at Atten Babler Risk Management LLC in Galena, Illinois. “The production report was really negative. Not a good sign there.”

The grain-based additive was 42.94 cents cheaper than gasoline, based on prompt-month contracts for both commodities, the biggest one-day widening since Dec. 26. The spread was 37.84 cents yesterday.

Denatured ethanol for February delivery fell 0.4 cent to $2.339 a gallon on the Chicago Board of Trade. Prices have advanced 9.2 percent in the past year.

February-delivery gasoline rose 4.7 cents, or 1.7 percent, to $2.7684 a gallon on the New York Mercantile Exchange as U.S. economic data boosted optimism that fuel demand will increase.

In cash market trading, ethanol in New York gained 0.5 cent to $2.415 a gallon and in the U.S. Gulf the additive was unchanged at $2.385, data compiled by Bloomberg show.

Ethanol in Chicago increased 0.5 cent to $2.315 a gallon and on the West Coast the additive jumped 2 cents, or 0.8 percent, to $2.46.

Corn Declines

Corn for March delivery slipped 6.75 cent, or 0.9 percent, to $7.245 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 28 cents on each gallon of the fuel made, down from 30 cents 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.

Aemetis Inc., a U.S. ethanol producer, idled production at its plant in Keyes, California, citing “unprofitable market conditions for corn ethanol,” and will upgrade the operation to also make fuel from sorghum, it said today.

Abengoa SA, a Spanish engineering and renewable energy company, said yesterday it idled output at ethanol mills in York and Ravenna, Nebraska, until market conditions improve.

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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