Ethanol Tumbles Against Gasoline as Improved Returns Lift Output

Ethanol declined against gasoline on speculation that higher returns from making the fuel with corn will spur companies to boost output.

The discount widened 2.12 cents to 25.42 cents a gallon, the largest differential since May 10. An Energy Information Administration report yesterday showed production climbed to a two-week high. The corn crush spread, or the difference between the cost of a gallon of ethanol and the corn needed to make it, has been above break-even for the longest stretch since 2011, according to data compiled by Bloomberg.

“We’ll probably continue to see that production number creep up here,” said Chris Wilson, an analyst at Atten Babler Risk Management LLC in Galena, Illinois. “With these margins, plants are turning on. We’re starting to increase run rates and capacity.”

Denatured ethanol for June delivery decreased 0.6 cent to $2.628 a gallon on the Chicago Board of Trade. Futures have gained 21 percent in the past year.

Gasoline for June delivery added 1.52 cents, or 0.5 percent, to $2.8822 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Corn prices have eased since reaching a record high during last year’s drought, and that’s decreased production costs for ethanol manufacturers, Wilson said.

Corn Crop

About 34 percent of this year’s corn crop will be used to make the fuel, the Agriculture Department said in a May 10 report. One bushel of the grain makes at least 2.75 gallons of ethanol.

Corn for July delivery slipped 9.25 cents, or 1.4 percent, to $6.415 a bushel in Chicago.

The corn crush spread for July was 19 cents, compared with 15 cents yesterday 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.

Ethanol output climbed 1.7 percent to 857,000 barrels a day in the week ended May 10, the highest since April 26 and up 11 percent from the record low 770,000 barrels a day in January, the EIA, the Energy Department’s statistical arm, said.

Corn-based ethanol Renewable Identification Numbers for 2013, or RINs, gained 6.5 percent to 83.59 cents as of 4:37 p.m. New York time, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, declined 0.4 percent to 90.14 cents.

Falling Supply

Stockpiles of the fuel last week fell 2.5 percent to 16.4 million barrels, the lowest since December 2010, EIA data show.

In cash market trading, ethanol on the West Coast tumbled 7 cents to $2.755 a gallon; in the U.S. Gulf the additive lost 3.5 cents to $2.685; in Chicago prices sank 3 cents to $2.63; and in New York the biofuel dropped 1.5 cents to $2.745 a gallon, data compiled by Bloomberg show.

West Coast ethanol’s premium to the Gulf narrowed 3.5 cents to 7 cents, while Chicago’s discount to New York Harbor increased 1.5 cents to 11.5 cents.

The U.S. hasn’t made any foreign purchases of the fuel since April 19, the longest such streak since the period ended March 2, 2012, EIA data show.

Anhydrous ethanol in Sao Paulo fetched $2.59 a gallon last week, data compiled by Bloomberg show.

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