Ethanol’s Discount to Gasoline Narrows on More Expensive Costs

Ethanol’s discount to gasoline narrowed on speculation that the cost of producing the biofuel will increase with rising prices for corn.

The grain-based additive was 57.24 cents a gallon cheaper than gasoline, based on prompt-month contracts for both commodities. That compares with 59.43 cents Jan. 4.

“It’s not cheap to make,” said Dan Flynn, a trader at Price Futures Group in Chicago.

Denatured ethanol for February delivery rose 2.4 cents, or 1.1 percent, to settle at $2.205 a gallon on the Chicago Board of Trade.

Gasoline for February delivery climbed 1.31 cents, or 0.5 percent, to $2.7774 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

In cash market trading, ethanol was unchanged in the U.S. Gulf at $2.235 a gallon and on the West Coast at $2.34, data compiled by Bloomberg shows.

Ethanol in New York dropped 1.5 cents, or 0.7 percent, to $2.265 a gallon and in Chicago the additive decreased 1.5 cents to $2.165.

A U.S. Agriculture Department report to be released Jan. 11 may show that corn inventories as of Dec. 1 were down 15 percent from a year earlier to the lowest level since 2003, according to a survey of 31 analysts by Bloomberg News.

Flynn said ethanol plants may see higher costs if the report shows tightening U.S. supply for the grain.

Corn for March delivery jumped 5.25 cents, or 0.8 percent, to $6.855 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Based on March contracts for corn and ethanol, producers are losing 27 cents on each gallon of the fuel made, unchanged from Jan. 4, according to data collected by Bloomberg. The figures exclude the revenue that can be made from the sale of dried distillers’ grains, a byproduct of ethanol production that can be fed to livestock.

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