Ethanol’s Discount to Gasoline Widens as Lower Corn Lifts Output

Ethanol weakened against gasoline on speculation that the cheapest corn in more than nine months will boost returns and spur higher production of the biofuel.

The spread, based on the May gasoline contract, expanded 9.79 cents to 77.55 cents a gallon. Last week the Agriculture Department reported that farmers will plant 97.282 million acres of corn this year, the most since 1936, and that inventories on March 1 were 8.1 percent bigger than analysts forecast. Ethanol is made from the grain in the U.S.

“It’s going to improve margins,” said Jason Ward, an analyst at Northstar Commodity Investments LLC in Minneapolis. “That would lead you to believe you’ll see more production. It’s one of the best pieces of news you’ve had in a long time for the ethanol producer.”

Denatured ethanol for May delivery dropped 10.7 cents, or 4.4 percent, to $2.326 a gallon on the Chicago Board of Trade. The April contract, which expires April 3, fell 9 cents to $2.361 a gallon.

Gasoline futures for May delivery slipped 0.91 cent, or 0.3 percent, to $3.1015 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 producers have navigated poor returns after drought in the U.S. sent corn prices to a record in August. At least 20 ethanol plants idled output in response to the higher costs, according to data from the Renewable Fuels Association in Washington.

Corn Stockpiles

Domestic inventories of corn on March 1 totaled 5.399 billion bushels, the Agriculture Department report showed, compared to analysts’ estimates for 4.995 billion.

Corn for May delivery slumped 53 cents, or 7.6 percent, to $6.4225 a bushel in Chicago, the lowest level since June 25, extending its two-day decline to 13 percent. One bushel makes at least 2.75 gallons of ethanol.

The corn crush spread, representing gains or losses from turning corn into ethanol and based on May contracts, was minus 0.1 cent a gallon, compared with minus 10 cents March 28.

The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

Valero Energy Corp., the third-biggest U.S. ethanol producer, said March 22 that it resumed output at a distillery in Linden, Indiana, because of better returns to make the biofuel.

Ethanol Output

Ethanol production in the week ended March 22 averaged 805,000 barrels a day, down 0.5 percent from the previous week and 16 percent from the record 963,000 in December 2011, a March 27 Energy Information Administration report showed.

Stockpiles have dropped a record eight consecutive weeks to 17.4 million barrels, the lowest level since December 2011, according to the report from the Energy Department’s analytical arm.

Ward said better profits to make the fuel should lead to lower prices and boost export demand and make the fuel more attractive to be mixed into gasoline.

Ethanol-blended gasoline made up 95 percent of the total U.S. gasoline pool on March 22, little changed from the previous week’s all-time high in records going back to May 2004.

U.S. Exports

The U.S. exported 1.5 million barrels of ethanol in January, the most recent month data is available, according to the EIA, the largest amount since July.

Canada, the United Arab Emirates and Brazil were the largest buyers of U.S.-made ethanol, the data show.

Imports, as of March 22, were unchanged from the previous week at 27,000 barrels a day, down 78 percent from the record of 122,000 barrels in October, EIA said.

In cash market trading, ethanol fell 5 cents to $2.52 in New York, 11 cents to $2.36 in Chicago, 10 cents to $2.42 on the Gulf Coast and 6 cents to $2.625 on the West Coast, data compiled by Bloomberg show.

West Coast ethanol’s premium to the Gulf Coast swelled 4 cents to 20.5 cents, while Chicago’s discount to New York Harbor widened 6 cents to 16 cents.

The value of Renewable Identification Numbers, or RINs, for corn-based ethanol were unchanged at 69 cents, data compiled by Bloomberg show. Advanced RINs, which include biodiesel and Brazilian sugarcane-based ethanol, jumped 5 cents to 77 cents.

RINs are certificates assigned to each gallon of biofuel produced. Once refiners blend the biofuel into petroleum, they can keep the credit to show compliance with federal mandates or trade it to another party.

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