Ethanol weakened against gasoline as corn dropped to the lowest price in a week, reducing production costs for the biofuel.
The spread narrowed 1.35 cents to 72.47 cents a gallon as corn, the primary ingredient used to make the additive in the U.S., sank the most since September on concern export demand for the grain declined last week.
“Corn took a bloodbath today,” said Terry Reilly, senior commodity analyst at Futures International LLC in Chicago. “Ethanol’s more correlated with the corn market. Margins improved slightly.”
Denatured ethanol for April delivery slipped 3.7 cents, or 1.5 percent, to $2.40 a gallon on the Chicago Board of Trade.
Gasoline futures for April delivery dropped 2.35 cents, or 0.8 percent, to settle at $3.1247 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, which is made to be blended with ethanol before delivery to filling stations.
Higher corn prices have eroded margins at ethanol plants and prompted at least 19 companies to idle operations since June, according to the Renewable Fuels Association, a Washington-based trade group.
Corn for March delivery tumbled 24 cents, or 3.3 percent, to $7.08 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.
The corn crush spread, representing gains or losses from turning corn into ethanol and based on March contracts, was minus 14 cents a gallon, up from minus 23 cents yesterday. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.
U.S. export sales of corn and soybeans probably fell in the week ended Feb. 28 from a year earlier, based on a survey of four analysts by Bloomberg News. The Agriculture Department is scheduled to release its sales report at 8:30 a.m. tomorrow in Washington.
Reilly said ethanol prices could rebound after the USDA publishes its World Agricultural Supply and Demand Estimates report at noon in Washington on March 8.
Ethanol inventories in the week ended March 1 fell for a fifth week to 19.4 million barrels, the lowest level since Nov. 30. It was the longest set of declines since October 2010, according to the report from the Energy Information Administration, the Energy Department’s analytical arm.
Production in the U.S. fell 0.9 percent to 805,000 barrels a day last week, 16 percent below the record 963,000 barrels a day in December 2011, the report showed.
Ethanol-blended gasoline made up 94 percent of the total U.S. gasoline pool, up from 88 percent in the week ended Feb. 22 and the highest level since Oct. 5, today’s report showed.
Under a 2007 energy law, U.S. refiners are required to use 13.8 billion gallons of ethanol this year and 14.4 billion in 2014.
The current production rate on an annualized basis is 12.3 billion gallons, or 11 percent short of the government target.
The value of Renewable Identification Numbers, or RINs, which are used to track whether refiners are meeting the federal biofuel-use mandates, has risen as supply has dwindled.
Corn-ethanol based RINs rose to a record 76 cents yesterday from 73.5 cents on March 4 and up from the 2013 low of 7.1 cents on Jan. 7, data compiled by Bloomberg show.
Advanced RINs, which include biodiesel and Brazilian-made ethanol, jumped to a record 81 cents from 79.5 cents on March 4.
The U.S. didn’t import any of the biofuel last week for the first time since Feb. 1, today’s EIA report showed.
Spot ethanol in Sao Paulo cost $2.42 a gallon last week, or about even with today’s futures price.
In cash market trading, ethanol fell at the major hubs, data compiled by Bloomberg show.
Ethanol in Chicago dropped 2 cents to $2.43 a gallon while in the U.S. Gulf, the additive lost 2.5 cents to $2.485. The biofuel in New York slipped 1.5 cents to $2.54 a gallon and on the West Coast, the most expensive locale in the nation, it decreased 1 cent to $2.62.
West Coast ethanol’s premium to the Gulf climbed to 13.5 cents from 12 cents yesterday, and Chicago’s discount to New York widened to 11 cents from 10.5 cents yesterday.