Ethanol’s discount to gasoline narrowed to the lowest level in more than two weeks after the biggest quarterly supply decline on record.
The spread, or price difference, contracted 2.91 cents to 44.66 cents a gallon, the least since March 19, two days after the Energy Information Administration reported the first dip in inventories for January-March in records going back to 2010. EIA data also showed a year-to-date production rate of 12.2 billion gallons annually, 12 percent lower than the 13.8 billion the U.S. is required to use this year.
“You’re drawing inventory way too fast at the wrong time of year,” said Jerrod Kitt, an analyst at Linn Group in Chicago. “Part of it is discipline on the production side.”
Denatured ethanol for May delivery slipped 0.6 cent, or 0.2 percent, to settle at $2.417 a gallon on the Chicago Board of Trade. Futures have gained 10 percent this year.
Gasoline futures for May delivery fell 3.51 cents, or 1.2 percent, to $2.8636 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.
Kitt said ethanol stockpiles typically gain during the first quarter of the year, before higher demand from the summer driving season that starts on the U.S. Memorial Day weekend at the end of May.
Production has plunged 16 percent to 807,000 barrels a day as of last week from a record 963,000 barrels in December 2011, data from the Energy Department’s statistical arm show.
Drought in the Midwest last year battered corn yields and sent prices for the grain to a record in August, eroding returns to turn a bushel of corn into the biofuel.
Prices for the grain have eased 14 percent since a March 28 Agriculture Department report showed domestic corn inventories on March 1 totaled 5.399 billion bushels, exceeding analysts’ estimates of 4.995 billion.
Corn for May delivery decreased 1 cent to $6.29 a bushel in Chicago, the lowest level since June. 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 May contracts, was 13 cents a gallon, unchanged from 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.
Kitt said ethanol prices are benefiting from lower imports from Brazil, the biggest seller of the fuel to the U.S., where the sugarcane harvest is under way. Sugarcane is the primary feedstock for Brazilian ethanol, compared with corn in the U.S.
“Ethanol has its own story aside from corn,” Kitt said.
Imports of the biofuel averaged 49,000 barrels a day last week, down 60 percent from the record 122,000 barrels a day in October, EIA data show.
Ethanol-blended gasoline made up 92 percent of the total U.S. gasoline pool, the least since Feb. 22, EIA said, and up from 91 percent a year ago.
In cash market trading, ethanol in the U.S. Gulf was unchanged at $2.535 a gallon; in New York the biofuel jumped 3.5 cents to $2.625; in Chicago the additive slipped 0.5 cent to $2.475; and on the West Coast, the most expensive trading locale in the nation, it gained 1 cent to $2.685 a gallon, data compiled by Bloomberg show.
West Coast ethanol’s premium to the U.S. Gulf widened 1 cent to 15 cents from the lowest level in four weeks, while Chicago’s discount to New York widened 4 cents to 15 cents.