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Ethanol Drops to Three-Year Low as Stockpiles Increase

Ethanol slipped to a three-year low after a government report showed stockpiles of the biofuel rebounded from a record low.

Futures dropped with corn on forecasts of a record harvest for the grain. Ethanol’s discount to gasoline widened 12.49 cents to 94.1 cents a gallon after the Energy Information Administration said inventories of the biofuel jumped 1.4 percent to 15.2 million barrels, while production declined 1 percent to 902,000 barrels a day.

“Stocks rose, but just not a whole lot,” said Mike Blackford, a consultant with INTL FCStone in Des Moines, Iowa. “The market’s a bit oversold, so I’d be surprised if we didn’t try to firm up.”

Denatured ethanol for December delivery decreased 1.3 cents, or 0.8 percent, to settle at $1.607 a gallon, the lowest level since July 26, 2010. Prices have declined 27 percent this year.

Gasoline for December delivery rose 3.19 cents, or 1.3 percent, to $2.548 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline made to be blended with ethanol before delivery to filling stations.

Corn, which is used to make ethanol in the U.S., also slipped to a three-year low. Corn for December delivery dropped 3.75 cents, or 0.9 percent, to $4.2125 a bushel in Chicago. The December crush spread of corn to ethanol was 8 cents, up from 7 cents yesterday. About one-third of the corn crop, estimated at more than 14 million bushels this year, is expected to go to ethanol output.

Biofuel Mandate

The Environmental Protection Agency has proposed a reduction in the amount of renewable fuels that refiners must blend into gasoline and diesel next year, according to a draft obtained by Bloomberg on Oct. 10. An energy law passed in 2007 established the escalating requirements for ethanol use. The U.S. is using less oil than it did in 2008.

The proposal has been sent to the Office of Management and Budget for review. Blackford said traders are hesitant to place bets until the official proposal is released.

“You can’t market under those conditions,” Blackford said. “It’s holding the market hostage.”

RINs, certificates attached to each gallon of corn-based ethanol that are submitted to the government and can be traded among companies, rose 6 cents to 28 cents a gallon. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, climbed 7 cents to 37 cents, data compiled by Bloomberg show.

Ethanol Imports

The U.S. hasn’t made any foreign purchases of the biofuel since Sept. 27, the longest such period since March 2012, according to the EIA, the Energy Department’s statistical arm.

In cash market trading, ethanol slid 8 cents to $1.94 in New York, 4 cents to $1.85 on the West Coast, 2.5 cents to $1.70 in Chicago and 1.5 cents to $1.80 on the Gulf Coast, data compiled by Bloomberg show.

The Gulf’s discount to the West Coast gained 2.5 cents to 5 cents, while New York’s premium to Chicago narrowed 5.5 cents to 24 cents.

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