April 22 (Bloomberg) -- Ethanol weakened against gasoline on speculation a tighter discount to the motor fuel will reduce demand and higher returns to make the additive will spur output.
Ethanol’s price difference expanded 2.6 cents to 31.04 cents a gallon, widening for the second time in three days after reaching of 27.1 cents April 17. Gasoline has dropped about 33 cents and ethanol has risen about 9.8 cents since April 1, when the margin was 74.05 cents. The crush margin, or the difference between the cost of a gallon of ethanol and the corn needed to make it, has been positive for all but one day in April, encouraging production. Renewable Identification Numbers were mixed.
“Most of it has been the pressure on gasoline,” said Jason Ward, an analyst at Northstar Commodity Investments LLC in Minneapolis. “The spread has narrowed. It certainly isn’t as advantageous as 50-cent-plus.”
Denatured ethanol for May delivery slipped 2.9 cents, or 1.2 percent, to $2.459 a gallon on the Chicago Board of Trade. Prices have gained 12 percent this year.
Gasoline for May delivery declined 0.3 cent to $2.7694 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 production in the week ended April 12 fell 2.6 percent to 832,000 barrels a day, the lowest level for this time of year in records going back to June 2010 and 14 percent below the record 963,000 barrels a day in December 2011, data from the Energy Information Administration show.
Output was battered by record corn prices after the worst drought since the 1930s slaughtered yields and devastated returns to make the biofuel.
Corn for May delivery fell 6.25 cents, or 1 percent, to $6.4575 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.
The corn crush spread was 11 cents a gallon, down from 12 cents on April 19. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.
“I would forecast more production to come online based off these margins,” Ward said. “If they don’t come back, it’s because they’re in an area where they can’t get the corn. The margins are there.”
Lower gasoline prices at filling stations may stoke demand for the additive, he said.
Corn-based ethanol RINs fell 2.9 percent to 66.5 cents, the lowest level since March 26, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, gained 2.5 percent to 81.5 cents.
The U.S. government uses RINS to track compliance with mandates to use ethanol. Refiners can trade RINs, which are attached to every gallon of ethanol for submission to the Environmental Protection Agency.
Ethanol-blended gasoline made up 94 percent of the total U.S. gasoline pool in the week ended April 12, down from a record 96 percent the previous week, the Energy Department’s statistical agency said in an April 17 report.
Lower production rates have helped to deplete stockpiles of the fuel. Inventories dropped 1.6 percent to 17.5 million barrels, EIA said, down from 20 percent from a year ago, and also at record seasonal lows.
In cash market trading, ethanol fell 7.5 cents to $2.70 a gallon on the West Coast, 5 cents to $2.56 on the Gulf Coast, 5 cents to $2.50 in Chicago and 8 cents to $2.63 in New York, data compiled by Bloomberg show.
West Coast ethanol’s premium to the U.S. Gulf narrowed 2.5 cents to 14 cents, the tightest since April 4. Chicago’s discount to New York Harbor contracted 3 cents to 13 cents, the smallest in a week.
U.S. refiners haven’t imported any of the biofuel since March 29, EIA data show, compared to 21,000 barrels a day a year earlier.
Spot ethanol in Sao Paulo cost $2.46 a gallon last week, data compiled by Bloomberg show. Brazil, which uses sugarcane to make the fuel, is the largest supplier of ethanol to the U.S.
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