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Ethanol’s Discount to Gasoline Narrows on Tight Corn Supplies

May 9 (Bloomberg) -- Ethanol’s discount to gasoline narrowed on concern that tight corn supplies before this year’s harvest will curtail production of the biofuel.

The spread, or price difference, shrank by 1.27 cents to 25.81 cents a gallon, a day after the Energy Information Administration said ethanol output last week fell 1.6 percent to 843,000 barrels a day. That was the lowest level since April 12 and the smallest for the time of year in records dating to June 2010, according to data compiled by Bloomberg. Renewable Identification Numbers advanced.

“There seems to be quite a bit of discipline in this market right now,” said Julie Ward, an assistant vice president at R.J. O’Brien & Associates, a broker in Des Moines, Iowa. “The plants that are running, most of them, have pulled back. Some of it is fear of the corn market.”

Denatured ethanol for June delivery rose 4.4 cents, or 1.7 percent, to $2.627 a gallon on the Chicago Board of Trade. Futures have gained 21 percent in the past year.

Gasoline for June delivery advanced 3.13 cents, or 1.1 percent, to $2.8851 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 is made mostly from corn in the U.S., with one bushel yielding at least 2.75 gallons of the renewable fuel. Returns to make the additive were cut last summer after drought in the Midwest destroyed crops.

Prices have eased on government forecasts that farmers plan to sow the most acres since 1936.

Corn Futures

Corn for July delivery gained 15.75 cents, or 2.5 percent, to $6.4875 a bushel in Chicago.

The corn crush spread for July was 14 cents a gallon, compared with 17 cents yesterday and minus 35 cents on Dec. 31. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

Lower production rates have helped drain inventories of the biofuel. Stockpiles last week dropped 1.1 percent to 16.8 million barrels, the lowest since Nov. 4, 2011, and 21 percent below a year earlier.

Ethanol-blended gasoline made up a record 97 percent of the total U.S. gasoline pool, up from 96 percent the previous week, the Energy Department’s statistical arm said.

Corn-based ethanol RINs climbed 3.2 percent to 80.5 cents as of 4:10 p.m. in New York, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol gained 3.3 percent to 93 cents.

In cash market trading, ethanol in New York slumped 4 cents to $2.87 a gallon, according to data compiled by Bloomberg. The additive gained 1.5 cents to $2.70 in Chicago, 1 cent to $2.76 on the Gulf Coast and 1.5 cents to $2.825 a gallon on the West Coast.

West Coast ethanol’s premium to the U.S. Gulf expanded 0.5 cent to 6.5 cents as Chicago’s discount to New York narrowed 5.5 cents to 17 cents.

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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