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Ethanol Narrows Against Gasoline as Corn Prices Curtail Output

Ethanol’s discount to gasoline narrowed as higher corn prices sent production rates to record lows for this time of year.

The spread, or price difference, shrank by 0.38 cent to 25.43 cents a gallon as ethanol production dropped 12 percent from a record 963,000 barrels a day in December 2011, according to Energy Information Administration data. Corn stockpiles on Aug. 31, before this year’s harvest, will be the lowest relative to consumption since 1995, Agriculture Department data show. Renewable Information Numbers slid.

“Production has been low and corn’s been hanging in there, too,” said Joshua Bailer, managing director of Next Generation Commodities, the biofuels division of Atlas Commodities LLC, in Miami. “With corn prices where they are, it makes sense.”

Denatured ethanol for June delivery fell 2.1 cents, or 0.8 percent, to $2.606 a gallon on the Chicago Board of Trade. Futures have gained 23 percent in the past year.

Gasoline for June delivery tumbled 2.48 cents, or 0.9 percent, to $2.8603 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Supply Report

The USDA said today that the corn harvest will surge 31 percent to 14.14 billion bushels from 2012’s levels, exceeding the estimate of 26 analysts surveyed by Bloomberg, who predicted 14.12 billion.

Ethanol companies across the U.S. Midwest shuttered operations or tempered output after drought last summer reduced yields for the grain and skyrocketed costs to make the biofuel.

Corn for July delivery slid 12.5 cents, or 1.9 percent, to $6.3625 a bushel in Chicago. One bushel makes at least 2.75 gallons of the biofuel.

The corn crush spread for July was 18 cents a gallon, compared with 14 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.

Ethanol is blended with gasoline to meet federal mandates. Compliance with the law is tracked by Renewable Identification Numbers, or RINs, certificates attached to each gallon of biofuel. Refiners can keep RINs or trade them.

Corn-based ethanol RINs dropped 5.6 percent to 76 cents as of 3:48 p.m. in New York, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol decreased 2.2 percent to 91 cents.

Stockpiles Low

Stockpiles last week dwindled 1.1 percent to 16.8 million barrels, the lowest since Nov. 4, 2011, data from the Energy Department’s statistical arm show.

Ethanol-blended gasoline made up a record 97 percent of the total U.S. gasoline pool, up from 96 percent the previous week, EIA said.

In cash market trading, ethanol slumped 7 cents to $2.80 a gallon in New York, 6 cents to $2.765 on the West Coast, 6 cents to $2.70 on the Gulf Coast and 4.5 cents to $2.655 in Chicago, data compiled by Bloomberg show.

New York Harbor’s premium to Chicago shrank by 2.5 cents to 14.5 cents, while the Gulf Coast’s discount to the West Coast was unchanged at 6.5 cents.

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