Ethanol’s Discount to Gasoline Narrows on Signs of Lower Imports

Ethanol’s discount to gasoline narrowed on speculation that a second weekly decline in the biofuel will make it more competitive with Brazilian products and reduce imports.

The spread narrowed 0.61 cent to 78.15 cents a gallon, based on settlement prices.

“We’re competitive with Brazil right now,” said Mike Blackford, a consultant at INTL FCStone in Des Moines, Iowa. “We’re getting a little bit of a bounce right here. We beat it up pretty good.”

Denatured ethanol for March delivery rose 2.4 cents, or 1 percent, to $2.353 a gallon on the Chicago Board of Trade, rebounding from the lowest level since Jan. 17. Prices have risen 7.4 percent this year.

Gasoline for March delivery rose 1.79 cents to $3.1345 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, which is blended with ethanol.

Imports in the week ended Feb. 8 averaged 11,000 barrels a day, down 84 percent from 2013’s high of 67,000 in the week ended Jan. 18, according to data from the Energy Information Administration, the Energy Department’s statistical agency.

Brazil is the largest supplier of ethanol to the U.S. The country uses sugarcane to make the fuel and a U.S. biofuels mandate weighs that nation’s variety of ethanol as superior to the domestic grade made from corn.

Spot ethanol in Sao Paulo cost $2.29 a gallon last week, according to data compiled by Bloomberg, 2.3 percent cheaper than futures in Chicago.

Brazilian Ethanol

That compares with the week ended Feb. 1, in which Brazilian ethanol was $2.21 a gallon, or 10 percent cheaper than the $2.469 a gallon futures price.

Corn for March delivery climbed 4 cents, or 0.6 percent, to $6.9875 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

The corn crush spread, the profit that can be made from turning a bushel of corn into ethanol, is minus 19 cents today, down from minus 20 cents yesterday.

Production slumped 18 percent to 789,000 barrels a day in the week ended Feb. 8 from a record 963,000 barrels a day in December 2011, according to EIA data.

Ethanol is down 14 percent from the 2012 high of $2.725 and the price decline may help make the fuel more attractive for export to countries like Canada and Mexico, Blackford said.

Falling Exports

Exports of the fuel in November, the most recent month for which EIA data is available, totaled 965,000 barrels, the smallest amount since November 2010.

Demand is capped in the U.S. as production capacity exceeds the amount with which it is currently mixed into gasoline, a phenomenon known as the blend wall, Blackford said.

The U.S. Environmental Protection Agency has granted approval for filling stations to sell gasoline that includes as much as 15 percent ethanol from 10 percent previously for vehicles made after 2001.

Eleven retailers, concentrated in the corn-rich and ethanol-heavy Midwest, are currently selling the fuel, according to the Renewable Fuels Association.

“We’re at the blend wall,” Blackford said. “The only thing the lower price might encourage is from an export standpoint.”

Ethanol-blended gasoline made up 89 percent of the total U.S. gasoline pool last week, little changed from the previous week, according to EIA.

Spot Trading

In cash market trading, ethanol fell in the regional trading hubs, data compiled by Bloomberg show.

Ethanol in New York sank 6 cents to $2.43 a gallon; 4.5 cents to $2.335 in Chicago; 3 cents to $2.40 in the U.S. Gulf; and 3 cents to $2.52 a gallon on the West Coast, the nation’s highest price.

New York Harbor ethanol’s premium to Chicago narrowed to 9.5 cents, the tightest level since Feb. 4, while the Gulf Coast’s discount to the West Coast held steady at 12 cents, up from 14 cents Feb. 11.

Before it's here, it's on the Bloomberg Terminal.