Ethanol Rises Versus Gasoline Amid Concern on Corn Availability
Ethanol advanced against gasoline on concern that demand for corn as the harvest begins will raise prices for the grain, boosting the cost of making the additive.
The spread, or discount, tightened 7.97 cents to 84.07 cents a gallon as futures jumped for December corn. Ethanol stockpiles have been at record seasonal lows this year since March, data compiled by Bloomberg show.
“Everybody’s so hungry for new corn that there’s going to be a line to buy,” said Jason Ward, an analyst at Northstar Commodity Investments LLC in Minneapolis. “There’s legitimate concern from the ethanol producer that he’s going to be able to source corn.”
Denatured ethanol for October delivery rose 1.3 cents, or 0.7 percent, to $1.895 a gallon on the Chicago Board of Trade. Futures have dropped 14 percent this year.
Gasoline for October delivery declined 6.67 cents, or 2.4 percent, to $2.7357 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 stockpiles are very low and the spread with gasoline is very wide,” Ward said. “That makes ethanol look attractive.”
Inventories slipped 0.2 percent to 16.2 million barrels in the week ended Aug. 30 from the previous week, data from the U.S. Energy Information Administration show. That was the lowest level since July 5.
Production tumbled a third week to 819,000 barrels a day, the smallest run rate since March, according to the Energy Department’s statistical arm.
Imports have averaged 22,000 barrels a day this year, up from 17,000 during the same period in 2012, EIA data show.
Ethanol is made mostly from corn in the U.S., with one bushel making at least 2.75 gallons of the renewable fuel.
Corn for December delivery climbed 5.5 cents, or 1.2 percent, to $4.69 a bushel in Chicago. September corn slipped 2.5 cents to $4.7475.
A 2007 energy law, known as the Renewable Fuels Standard, calls for the U.S. to consume 13.8 billion gallons of ethanol this year. Compliance is tracked by Renewable Identification Numbers, or RINs, that are attached to each gallon of biofuel and that can be traded among companies.
Corn-based ethanol RINs fell 1 cent to 67 cents, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, decreased 2 cents to 74 cents.
Valero Energy Corp. (VLO), the world’s largest independent refining company, called on the Obama administration to waive the country’s biofuel target immediately, saying the cost to reach it has skyrocketed.
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