Ethanol Jumps Versus Gasoline as Weather Threatens Corn Crop

Ethanol advanced versus gasoline as cool, wet weather in the Midwest threatened to reduce corn yields and push up costs to make the biofuel.

The spread, or price difference, tightened 10.43 cents to 15 cents a gallon, on forecasts for weather considered unfavorable for planting in the Midwest. About 34 percent of the corn crop will be used to make ethanol, the Agriculture Department said in a report on May 10.

“We’re getting a pretty decent spike in corn and that really has to do with the cooler weather,” said Dan Flynn, a trader at Price Futures Group in Chicago. “That’s probably spilling over into the ethanol.”

Denatured ethanol for June delivery jumped 6.5 cents, or 2.5 percent, to $2.671 a gallon on the Chicago Board of Trade. Futures have gained 27 percent in the past year.

Gasoline for June delivery declined 3.93 cents, or 1.4 percent, to $2.821 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 production averaged 843,000 barrels a day in the week ended May 3, 6 percent lower than a year earlier, as companies struggle to rebound to the levels before last summer’s drought baked corn crops and eroded returns to make the biofuel, data from the Energy Information Administration show.

Corn for July delivery increased 19.25 cents, or 3 percent, to $6.555 a bushel in Chicago. One bushel makes at least 2.75 gallons of the biofuel.

Crush Spread

The corn crush spread for July was 17 cents a gallon, compared with 18 cents on May 10 and minus 35 cents on Dec. 31. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

A 2007 energy law, as the Renewable Fuels Standard, requires U.S. refiners to use 13.8 billion gallons of ethanol this year. Compliance with the program is tracked by Renewable Identification Numbers, or RINs, certificates attached to each gallon of biofuel.

The value of corn-based ethanol RINs rose 1 percent to 78.66 cents at 4:40 p.m. New York time, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, decreased 1 percent to 91.27 cents.

Stockpiles of the biofuel have been depleted by the lower production. Inventories in the week ended May 3 fell 1.1 percent to 16.8 million barrels, the lowest since November 2011, the Energy Department’s statistical arm said in a report last week.

Ethanol-blended gasoline made up a record 97 percent of the total U.S. gasoline pool, up from 96 percent the previous week, EIA said.

In cash market trading, ethanol increased 7.5 cents to $2.875 a gallon in New York, 6.5 cents to $2.765 on the Gulf Coast, 3.5 cents to $2.80 on the West Coast and 4.5 cents to $2.70 a gallon in Chicago, data compiled by Bloomberg show.

The U.S. hasn’t imported any of the fuel since April 19, EIA data show.

Anhydrous ethanol in Sao Paulo fell 3 percent to $2.50 a gallon in the week ended May 3, according to data compiled by Bloomberg.

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