Ethanol’s Discount to Gasoline Expands as Prices Plunge on Corn

Ethanol’s discount to gasoline expanded a second day as prices for the biofuel plummeted to the lowest level in three years on speculation that feedstock costs will ease.

The spread, or price difference, swelled 8.09 cents to 99.56 cents a gallon, the widest since Sept. 28, 2012. The U.S. Agriculture Department forecast yesterday that corn output will be 13.84 billion bushels this year, the most ever and up from 13.763 billion estimated last month. Ethanol is made mostly from the grain in the U.S., with one bushel making at least 2.75 gallons of the renewable fuel.

“That lowers feedstock costs for ethanol producers, which weighs on the price,” said Jerrod Kitt, an analyst at Linn Group in Chicago. “It just keeps sinking, doesn’t it?”

Denatured ethanol for October delivery slid 7.4 cents, or 4 percent, to $1.774 a gallon on the Chicago Board of Trade, the lowest level since August 2010. Futures have dropped 19 percent this year.

Gasoline for October delivery increased 0.69 cent to $2.7696 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

The U.S. corn harvest is usually from September to November. Kitt said the market expects end users to pay less for the grain as more supply becomes available.

November ethanol is trading at a 12.9-cent discount to the October contract.

Corn Slips

Corn for December delivery fell 7.25 cents, or 1.6 percent, to $4.59 a bushel in Chicago. The December crush spread of corn to ethanol was minus 5 cents a gallon. The September corn contract, which expires today, fell 29 cents to $4.50.

Drought in the summer of 2012 baked corn crops and reduced supply. That raised costs for ethanol producers, forcing companies to temper output and temporarily shutter operations.

Ethanol production in the week ended Sept. 6 rose 3.5 percent to 848,000 barrels a day, data from the U.S. Energy Information Administration show. That’s down 12 percent from the record 963,000 barrels a day in December 2011.

Stockpiles last week climbed 0.3 percent to 16.3 million barrels, the most since Aug. 16. Ethanol blender inputs, a measure of demand, tumbled 3.1 percent to 834,000 barrels a day, an eight-week low. Imports dropped 59 percent to 15,000 barrels a day last week.

Anhydrous ethanol in Sao Paulo, where sugarcane is used to make the fuel, cost $2.06 a gallon in the week ended Sept. 6, the highest since Aug. 2, data compiled by Bloomberg show.

Tracking certificates called Renewable Identification Numbers, or RINs, are attached to each batch of biofuel to help the U.S. and refiners track compliance with federal consumption targets.

Corn-based ethanol RINs fell 3 cents to 60 cents, while advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, dropped 2 cents to 69 cents, both the lowest level since Feb.28, data compiled by Bloomberg show.