Ethanol Drops Against Gasoline as Margins May Boost Production

Ethanol’s discount to gasoline reached the widest level in three months on speculation higher profit margins to make the fuel will boost production.

The spread, or price difference, expanded 5.5 cents to 68.01 cents a gallon as the December corn contract on the Chicago Board of Trade touched the lowest level for a most-active contract since October 2010. The spread is the widest between front-month contracts since April 1.

“Corn was off overnight, so that’s the main reason ethanol is weak,” said Chris Wilson, a broker at Atten Babler Risk Management LLC in Galena, Illinois. “Out on the curve, margins look really good.”

Denatured ethanol for August delivery fell 5.1 cents, or 2.1 percent, to $2.379 a gallon on the Chicago Board of Trade. Prices have gained 8.6 percent this year.

Gasoline for August delivery gained 0.4 cent to $3.0591 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 was 876,000 barrels a day in the week ended July 12, up 14 percent from a record low in January, according to Energy Information Administration data.

Corn for September delivery decreased 18.25 cents, or 3.4 percent, to $5.225 a bushel in Chicago. The more actively traded December contract dropped 12.5 cents to $4.855.

Crush Spread

The corn crush spread, or the cost difference between a gallon of ethanol and the corn needed to make it, based on September contracts for the grain and biofuel, was 36 cents, up from 33 cents yesterday, data compiled by Bloomberg show. The margin was minus 35 cents on Dec. 31.

Tracking certificates, known as Renewable Identification Numbers, or RINs, are used by refiners and the U.S. Environmental Protection Agency, to show compliance with government mandates to use ethanol.

Corn-based ethanol RINs fell 3 cents to $1.33, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, dropped 6 cents to $1.36.

The U.S. House Energy and Commerce Committee held hearings today and has a meeting planned for tomorrow focusing on whether the country should adjust the Renewable Fuels Standard.

U.S. Representative Fred Upton, a Republican from Michigan and the chairman of the committee, said today that modifications are necessary and the “current system cannot stand.”

Cash Market

In cash market trading, ethanol tumbled 12 cents to $2.455 a gallon in New York, 9 cents to $2.40 in Chicago, 10 cents to $2.47 on the Gulf Coast and 9 cents to $2.595 on the West Coast, data compiled by Bloomberg show.

West Coast ethanol’s premium to the Gulf widened 1 cent to 12.5 cents, the largest since July 10, while Chicago’s discount to New York Harbor contracted 3 cents to 5.5 cents, the tightest since July 18.

The Energy Department is scheduled to release the latest production, supply and import data on ethanol at 10:30 a.m. tomorrow in Washington.

Last week’s report showed stockpiles gained 5.5 percent to 16.6 million barrels in the seven days ended July 12, from the previous period. Imports doubled to 50,000 barrels a day.

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