Ethanol Weakens Against Gasoline on Ample Supply, Lower Demand

Ethanol weakened against gasoline on concern demand isn’t strong enough to cut a glut of the biofuel.

The spread widened 1.68 cents a gallon to 58.46 cents after a Jan. 25 Energy Information Administration report showed stockpiles climbed to a six-week high even as production plunged to the lowest level since the Energy Department’s statistical arm began tracking weekly data in June 2010.

“It’s too much ethanol chasing too little demand,” said Wallace Tyner, an agricultural economist at Purdue University in West Lafayette, Indiana. “Ethanol has decoupled from gasoline.”

Denatured ethanol for February delivery rose 1.1 cents, or 0.5 percent, to $2.469 a gallon on the Chicago Board of Trade, the highest since Sept. 10. Prices advanced 12 percent in January, the first monthly gain since October, and are up 13 percent this year.

Gasoline for March delivery increased 2.19 cents, or 0.7 percent, to $3.0536 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, which is made to be blended with ethanol.

Based on March contracts for ethanol and gasoline the additive traded at a 57.76-cent discount to the motor fuel. The February ethanol contract expires Feb. 5.

Ethanol-blended gasoline made up 87 percent of the total U.S. gasoline pool in the week ended Jan. 25, down from 90 percent a year earlier, Energy Information Administration data showed in a Jan. 30 report.

Corn Prices

Production of the fuel has been hurt as the price of corn, which is used to make ethanol in the U.S., rose because drought conditions in the Midwest reduced the corn yields. Eighteen ethanol plants have been idled since June as the drought wilted the corn crop, according to the Renewable Fuels Association, a Washington-based trade group.

Corn for March delivery fell 4.5 cents, or 0.6 percent, to $7.36 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

The corn crush spread, or the profit that can be made from turning a bushel of corn into ethanol, is minus 20 cents a gallon down versus minus 22 cents yesterday, according to data compiled by Bloomberg.

Production fell 2.8 percent to 770,000 barrels a day in the week ended Jan. 25 from the previous week, the EIA said, the lowest level since the Energy Department’s statistical arm began tracking weekly data in June 2010.

Plant Closures

“We’ve weeded out some of the plants that were inefficient or in corn-starved areas,” said Mike Blackford, a consultant at INTL FCStone in Des Moines, Iowa.

Stockpiles rose 2.3 percent to 20.5 million barrels, the highest since Dec. 14, the EIA report showed.

Blackford said the combination of higher demand and the production declines will help reduce the oversupply.

Producers have had to contend with a flow of imports from Brazil, where ethanol is made from sugarcane. Imports averaged 9,000 barrels a day last week, up from 5,000 a year ago, Energy Department data shows.

Spot ethanol in Sao Paulo cost $2.21 a gallon in the week ended today, data compiled by Bloomberg show, about 10 percent cheaper than today’s U.S. futures price.

Ethanol producers complained yesterday about Obama administration proposals to raise use of renewable fuels, such as ethanol and biodiesel, as part of a 2007 energy law, also considers sugar-cane-based ethanol to be superior to the corn-based variety.

Brazilian Threat

“We are concerned, however, that the proposed 2013 advanced biofuel standard will open the door even wider to imports of more expensive Brazilian sugarcane ethanol,” the Renewable Fuels Association said in a statement yesterday.

The value of Renewable Identification Numbers, known as RINs, rose yesterday, for advanced forms of ethanol, which includes the Brazilian variety, as well as for corn-based.

Advanced RINs at 30.5 cents were 19.5 cents more expensive than the conventional variety, data compiled by Bloomberg show.

Ethanol rose in spot market regions. The additive climbed 1 cent to $2.575 a gallon in New York Harbor, 3.5 cents to $2.485 in Chicago, 1.5 cents to $2.52 on the Gulf Coast and added 2 cents to $2.635 a gallon on the West Coast.

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