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Ethanol Discount to Gasoline Widens From Tightest in Four Months

Ethanol’s discount to gasoline widened from a four-month low even as the biofuel gained for a third day on speculation demand will rise to meet targets set by the federal government.

The spread widened 2.45 cents to 29.55 cents a gallon, a day after the Energy Information Administration said ethanol output fell 2.6 percent to 832,000 barrels a day last week. Production through April 12 averaged 804,000 barrels a day, or 12.3 billion gallons on an annual basis, 11 percent below the 13.8 billion that refiners are required to use this year.

“Obviously it’s gyrating around, but the production trend is higher,” said Mike Blackford, a consultant at INTL FCStone in Des Moines, Iowa.

Denatured ethanol for May delivery added 0.2 cent to $2.46 a gallon on the Chicago Board of Trade, the highest since March 27. Prices have gained 12 percent this year.

Gasoline for May delivery climbed 2.65 cents, or 1 percent, to $2.7555 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Ethanol’s discount to gasoline rebounded from the smallest differential since Dec. 10. Blackford said the higher value of Renewable Identification Numbers, or RINs, the certificates attached to each gallon of biofuel produced that refiners and the government use to show compliance with the government program, encourages use.

RINs Values

Corn-ethanol-based RINs fell 1 cent to 70 cents, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, climbed 0.5 cent to 79.5 cents.

Production hasn’t rebounded to the levels seen before last summer’s drought that devastated corn yields and eroded margins to manufacture the fuel, Blackford said.

Corn for May delivery fell 16 cents, or 2.4 percent, to $6.445 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 May contracts, was 12 cents a gallon, up from 6 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.

Ethanol output will reach 13 billion gallons this year and 14.1 billion next year, the Energy Department’s analytical arm forecast in its April 9 Short-Term Energy Outlook.

Higher Projection

The Agriculture Department, in the April 10 World Agricultural Supply and Demand Estimates report, raised its projection for corn to be used to make the biofuel to 4.55 billion bushels from an earlier estimate of 4.5 billion.

Ethanol stockpiles fell 1.6 percent to 17.5 million barrels, 20 percent lower than a year ago, EIA data show. Supply has fallen 11 out of the 15 weeks so far in 2013.

The U.S. hasn’t imported any of the fuel since March 29, yesterday’s report showed. Imports have averaged 26,000 barrels a day this year, up from 5,000 a year earlier.

Spot ethanol in Sao Paulo cost $2.46 a gallon last week, the highest since April 13, 2012, data compiled by Bloomberg shows.

Ethanol-blended gasoline made up 94 percent of the total U.S. gasoline supply last week, down from a record 96 percent the previous week, according to the EIA.

In cash market trading, ethanol increased 4.5 cents to $2.645 a gallon in New York, 3 cents to $2.465 in Chicago and 2.5 cents to $2.52 on the Gulf Coast, data compiled by Bloomberg show. On the West Coast, ethanol was unchanged at $2.76 a gallon.

West Coast ethanol’s premium to the Gulf Coast narrowed 2.5 cents to 24 cents. Chicago’s discount to New York Harbor expanded 1.5 cents to 18 cents, the steepest since Dec. 9, 2011.

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