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Ethanol Falls as Production Jumps to Highest Level in 16 Months

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Oct. 31 (Bloomberg) -- Ethanol declined a day after a government report showed that production last week jumped to the highest level in 16 months.

The additive’s discount to gasoline widened 0.09 cent to 84.97 cents a gallon a day after the Energy Information Administration said production rose 1.6 percent to 911,000 barrels a day, the highest since June 8, 2012.

“Things are still tight, there’s no doubt about it, but eventually this all works out,” said Mike Blackford, a consultant at INTL FCStone in Des Moines, Iowa. “It’s a big production rate and the trader’s job is to try to look ahead.”

Denatured ethanol for November delivery fell 1.8 cents, or 1 percent, to $1.784 a gallon on the Chicago Board of Trade. Futures are down 19 percent this year.

Gasoline for November delivery sank 1.71 cents, or 0.7 percent, to $2.6337 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Implied demand for ethanol jumped to the highest this year, according to data from Bloomberg Industries.

Stockpiles of the additive last week dropped 3.5 percent to 15 million barrels, an all-time low, data showed from the EIA, the Energy Department’s analytical arm.

The U.S. hasn’t made any foreign purchases of the biofuel since Sept. 27, the longest streak since May, according to EIA.

Blackford said he expects production levels to increase from current levels and that the industry would have to increase exports in order to buoy prices.

Ethanol Exports

A separate EIA report yesterday showed ethanol exports in August, the most recent month data is available, jumped to 38,000 barrels a day, the highest since March.

Ethanol is made from corn in the U.S. Farmers have harvested 59 percent of crops as of Oct. 27, compared to 39 percent a week earlier, the U.S. Agriculture Department said on Oct. 28.

Corn for December delivery slipped 2 cents, or 0.5 percent, to $4.2825 a bushel in Chicago. The December crush spread of corn to ethanol was 10 cents, down from 11 cents yesterday, according to data compiled by Bloomberg.

RINs, certificates attached to each gallon of corn-based ethanol that are submitted to the government and can be traded among companies, gained 2 cents to 25 cents a gallon. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, rose 3 cents to 32 cents.

In cash market trading, ethanol on the West Coast dropped 7 cents to $2.005 a gallon, data compiled by Bloomberg show. Prices in the U.S. Gulf rose 3.5 cents, also reaching $2.005, while in Chicago the additive lost 6.5 cents to $1.825, and in New York the biofuel gained 5 cents to $2.055 a gallon.

Chicago’s discount to New York widened 10.5 cents to 23 cents, while the West Coast traded at parity to the Gulf.

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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