Ethanol’s Discount to Gasoline Tightens on Corn Supply Concern
Ethanol’s discount against gasoline tightened to the smallest in more than four months on concern that slower corn planting will boost the cost of producing the biofuel.
The spread contracted by 11.94 cents to 25.65 cents a gallon after an Agriculture Department report showed farmers planted 5 percent of the corn crop as of yesterday, compared with a five-year average of 31 percent. Corn is the primary feedstock for ethanol manufactured in the U.S., with one bushel making at least 2.75 gallons of the fuel. Renewable Identification Numbers, or RINs, advanced.
“Ethanol is definitely trading higher with the boost in corn pricing,” said Dan Flynn, a trader at Price Futures Group in Chicago. “Everybody is behind schedule.”
Denatured ethanol for May delivery rose 11.2 cents, or 4.6 percent, to $2.571 a gallon on the Chicago Board of Trade, the highest price since March 27 and the biggest one-day gain since Sept. 28. Prices have advanced 17 percent this year.
Gasoline for May delivery slipped 0.74 cent, or 0.3 percent, to $2.8275 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’s discount to gasoline was the narrowest since Dec. 10.
Higher corn costs following drought in the Midwest last year forced ethanol companies to shutter operations and temper output. Prices for the grain have eased on rising inventory estimates and projections that U.S. farmers would boost planting to the most since 1936.
Corn for May delivery surged 40 cents, the daily limit on the Chicago Board of Trade, rising 6.2 percent to $6.84 a bushel.
The corn crush spread was 8 cents a gallon, down from 12 cents April 26. That compares with 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.
Flynn said the slow planting progress sparks concern that feedstock availability for ethanol plants might be affected.
Corn-based ethanol RINs increased 7.3 percent to 73.5 cents, the highest price since April 12, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, added 1.3 percent to 78 cents, the most since April 22.
About 42 percent of this year’s corn crop will go toward ethanol production, the USDA said in its April 10 World Agricultural Supply and Demand Estimates report.
Ethanol output averaged 853,000 barrels a day in the week ended April 19, down 11 percent from the record 963,000 barrels a day in December 2011, according to the Energy Information Administration, the Energy Department’s statistical arm.
Inventories were at 17.6 million barrels last week, down 19 percent from a year earlier, EIA data show.
In cash market trading, ethanol jumped 8.5 cents to $2.565 a gallon in Chicago; 7 cents to $2.615 in the Gulf; and 5.5 cents to $2.755 on the West Coast, according to data compiled by Bloomberg. In New York, the biofuel sank 2.5 cents to $2.67 a gallon.
West Coast ethanol’s premium to the U.S. Gulf narrowed 1.5 cents to 14 cents while Chicago’s discount to New York shrank 11 cents to 10.5 cents, the tightest differential in two weeks.
Ethanol imports averaged 39,000 barrels a day in the week ended April 19, the first time U.S. companies have made outside purchases of the biofuel since March 29, EIA data show.
Anhydrous ethanol in Sao Paulo cost $2.64 a gallon as of April 19, data compiled by Bloomberg show.
Ethanol-blended gasoline made up 93 percent of the total U.S. gasoline pool, the lowest since March 29, according to EIA.
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