Ethanol’s Discount to Gasoline Narrows on Tighter Corn Supply

Ethanol’s discount to gasoline narrowed after a government report estimated tighter supplies of corn, the main feedstock for the fuel in the U.S.

The spread, or price difference, shrank by 1.71 cents to 74.61 cents a gallon after the Agriculture Department said U.S. farmers will collect 13.763 billion bushels this year, below the 14.036 billion predicted by analysts in a Bloomberg survey.

“It was a little bit bullish with the corn supply,” said Jim Damask, a manager at StarFuels Inc. in Jupiter, Florida.

Denatured ethanol for September delivery rose 1.3 cents, or 0.6 percent, to $2.158 a gallon on the Chicago Board of Trade. Prices fell as much as 1.2 percent to $2.119 before the report. Futures have declined 1.5 percent this year.

Gasoline for September delivery decreased 0.41 cent to $2.9041 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Damask said ethanol producers can expect higher manufacturing costs. One bushel of corn makes at least 2.75 gallons of ethanol. Farmers planted the most acres since 1936 after last summer’s drought devastated crops.

Corn for September delivery rose 6.25 cents, or 1.3 percent, to $4.72 a bushel in Chicago. The more actively traded December contract jumped 10.75 cents to $4.64.

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, was 44 cents, down from 45 cents Aug. 9, data compiled by Bloomberg show.

Ethanol output has struggled to recover to the levels prior to the drought. Production in the week ended Aug. 2 averaged 853,000 barrels a day, down 11 percent from the record 963,000 barrels a day in December 2011, data from the Energy Information Administration show.

Stockpiles were 16.7 million barrels that week, down 10 percent from a year earlier, according to the EIA, the Energy Department’s research arm.

The government uses tracking certificates, known as Renewable Identification Numbers, or RINs, to determine compliance with mandates to use the fuel.

Corn-based ethanol RINs rose 3 cents to 70 cents, the highest since Aug. 7, while advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, added 5 cents to 78 cents, data compiled by Bloomberg show.

Ethanol imports surged to 56,000 barrels a day last week, up from 13,000 barrels a day in the prior period, EIA data show.

In cash market trading, ethanol on the West Coast gained 3 cents to $2.45 a gallon, data compiled by Bloomberg show. In the U.S. Gulf, prices sank 1.5 cents to $2.345 and in Chicago the additive lost 1.5 cents to $2.245. In New York, the biofuel was unchanged at $2.40 a gallon.

West Coast ethanol’s premium to the Gulf expanded 4.5 cents to 10.5 cents, the widest since July 31, and Chicago’s discount to New York deepened 1.5 cents to 15.5 cents.

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