Ethanol’s discount to gasoline expanded on speculation that the longest streak of positive returns for making the biofuel since 2011 will prompt companies to boost output.
The spread widened 2.83 cents to 37.94 cents a gallon as the corn crush spread, or the cost difference between a gallon of ethanol and the corn needed to make it, grew to 5 cents, compared with minus 33 cents on Jan. 2, data compiled by Bloomberg show.
“Ethanol producers will keep as much of their ethanol capacity producing as long as there’s a profit,” said Larry Johnson, owner of LLJ Consulting and Business Development in Cologne, Minnesota. “There’s an operating margin. Profit is better than most of last year.”
Denatured ethanol for July delivery fell 0.5 cent to $2.50 a gallon on the Chicago Board of Trade. Prices are up 14 percent this year.
Gasoline for July delivery advanced 2.33 cents, or 0.8 percent, to $2.8794 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-blended gasoline made up 94 percent of the total U.S. gasoline pool on June 7, up from 89 percent the previous week, the Energy Information Administration said.
Production has climbed 15 percent to 884,000 barrels a day in the week ended June 7 from a record-low 770,000 barrels a day in January, according to the EIA, the Energy Department’s analytical arm.
Stockpiles of the biofuel fell 2.6 percent to 16 million barrels, the lowest level in records going back to June 2010.
Last summer’s drought pushed corn prices to a record and forced ethanol companies to reduce operations.
Corn for July delivery climbed 4.75 cents to $6.7325 a bushel in Chicago.
Johnson said he expects ethanol production to increase gradually during the summer and into the corn harvest in September.
In cash market trading, ethanol slipped 2.5 cents to $2.62 a gallon on the Gulf Coast, 1 cent to $2.57 in Chicago and 1 cent to $2.605 in New York, data compiled by Bloomberg show. On the West Coast, the biofuel was unchanged at $2.84 a gallon,
West Coast ethanol’s premium to the U.S. Gulf widened 2.5 cents to 22 cents, while Chicago’s discount to New York was unchanged at 3.5 cents.
Higher ethanol prices have led to increased foreign purchases of the biofuel. Imports so far this year averaged 17,000 barrels a day through June 7, compared with 6,000 a day during the same period a year earlier, EIA data show.
Anhydrous ethanol in Sao Paulo cost $2.33 a gallon in the week ended June 7, the lowest price since Nov. 16, according to data compiled by Bloomberg.