Ethanol Weakens Against Gasoline as Lower Corn May Boost Output

Ethanol weakened against gasoline for a second day on speculation that cheaper manufacturing costs will boost production of the biofuel.

The discount, or price difference, widened 2.54 cents to 29.9 cents a gallon after the Agriculture Department said farmers may plant 97.379 million acres of corn, the most since 1936. Corn is the primary ingredient in U.S.-made ethanol.

“We’ll see a gradual increase in production,” said Terry Reilly, senior commodity analyst at Futures International LLC in Chicago. “Cheaper corn prices are on the horizon.”

Denatured ethanol for July delivery slipped 1.6 cents to $2.453 a gallon on the Chicago Board of Trade. Prices are up 12 percent this year and are little changed this quarter.

Gasoline for July delivery rose 0.94 cents to $2.752 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

One bushel of corn makes at least 2.75 gallons of the renewable fuel. Prices for the grain reached a record $8.49 a bushel in August after last summer’s U.S. drought scorched crops and eroded returns to make ethanol.

Corn for July delivery climbed 12 cents, or 1.8 percent, to $6.7925 a bushel in Chicago. The corn crush spread, or the cost difference between a gallon of ethanol and the corn needed to make it was minus 2 cents, compared with minus 35 cents on Dec. 31, data compiled by Bloomberg show.

Cash Market

In cash market trading, ethanol was unchanged at $2.665 a gallon on the West Coast, data compiled by Bloomberg show. The additive decreased 2.5 cents to $2.475 in Chicago, 1.5 cents to $2.55 on the Gulf Coast and 0.5 cent to $2.535 in New York,

West Coast ethanol’s premium to the U.S. Gulf expanded 1.5 cents to 11.5 cents, while Chicago’s discount to New York Harbor increased 2 cents to 6 cents.

Output of the fuel gained 15 percent to 885,000 barrels a day in the week ended June 21 from a record low of 770,000 barrels a day in January, according to the Energy Information Administration. Stockpiles of the fuel have rebounded 1.9 percent to 16.3 million barrels from the all-time low of 15.9 million on June 7.

Ethanol-blended gasoline made up about 95 percent of the total U.S. gasoline pool last week, up from 94 percent the previous week. Ethanol imports fell 42 percent to 38,000 barrels a day, said the EIA, the Energy Department’s statistical arm.

Brazilian Price

Anhydrous ethanol in Sao Paulo cost $2.25 a gallon in the week ended June 21, the lowest price since Nov. 9, data compiled by Bloomberg show.

Compliance with a law that requires refiners to use 13.8 billion gallons of ethanol in gasoline is tracked by Renewable Identification Numbers, or RINs. Companies can submit the credits to the government or trade them.

Corn-based ethanol RINs rose 2 cents to 97 cents, the highest price since March 11, while advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, jumped 7 cents to $1.08, the most since March 8, data compiled by Bloomberg show.

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