Ethanol Weakens Against Gasoline on Falling Corn Prices

Ethanol’s discount to gasoline widened on speculation that a drop in corn prices will boost ethanol production, adding to a glut of supply in the U.S.

The spread widened 4.29 cents a gallon to 59.44 cents based on settlement prices as corn fell for a third day to the lowest level since Jan. 25, data compiled by Bloomberg show.

“Ethanol still likes to track corn more than anything, and today is no exception,” said Mike Blackford, a consultant at INTL FCStone in Des Moines, Iowa.

Denatured ethanol for March delivery fell 1.7 cents, or 0.7 percent, to $2.443 a gallon on the Chicago Board of Trade. Gasoline for March delivery rose 2.59 cents, or 0.9 percent, to $3.0374 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline made to be blended with the biofuel.

Ethanol for February delivery fell 3.1 cents, or 1.3 percent, to $2.409 a gallon. The contract expires today.

Corn for March delivery fell 5.25 cents, or 0.7 percent, to $7.29 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, was unchanged at minus 21 cents a gallon, according to data compiled by Bloomberg.

Supply Glut

The biofuel’s stockpiles totaled 20.5 million barrels in the week ended Jan. 25, a gain of 2.3 percent from the previous week, the EIA report showed. Ethanol-blended gasoline made up 87 percent of all U.S. gasoline during the same period, down from 90 percent a year ago.

Under a 2007 energy law, U.S. refiners are to use 13.8 billion gallons of renewable fuels, such as ethanol, this year and 15 billion by 2015.

“It seems like ethanol demand hasn’t been that strong. Stocks have been pretty heavy,” said Will Babler, a broker at Atten Babler Risk Management LLC in Galena, Illinois.

Production was 770,000 barrels a day in the week ended Jan. 25, or 11.8 billion gallons on an annualized basis, the EIA data showed.

Producers have to contend with imports from Brazil, where ethanol is made from sugarcane. Spot ethanol in Sao Paulo cost $2.21 a gallon in the week ended Feb. 1, data compiled by Bloomberg show, or 11 percent less than today’s U.S. futures price.

U.S. ethanol imports averaged 39,000 barrels a day in the first four weeks of the year, up from 1,250 a year earlier, EIA data show. Archer-Daniels-Midland Co., the world’s largest corn processor, said in a release today that imports have led to “excess” ethanol inventory and negative margins.

In cash market trading, the biofuel slid in all regions. The additive fell 4 cents to $2.44 in Chicago, 3 cents to $2.49 in the U.S. Gulf, 2.5 cents to $2.605 on the West Coast, and 2 cents to $2.55 in New York, according to data compiled by Bloomberg.