Ethanol’s Discount to Gasoline Widens on Signs of Higher Output

Ethanol’s discount to gasoline widened a fourth day on speculation next month’s corn harvest will lower costs for distillers and boost output of the renewable fuel.

The spread, or price difference, ballooned 2.42 cents to 62.56 cents a gallon as the September ethanol contract traded at a 41.2-cent premium to October futures delivered after the harvest, a phenomenon known as backwardation, where prompt prices are higher than later ones.

“You had ethanol plants offline that should come back online,” said David Dunn, an analyst and broker at Progressive Fuels Ltd. in Naples, Florida. “People are expecting a bounce-back in production.”

Denatured ethanol for September delivery fell 7.2 cents, or 2.9 percent, to $2.393 a gallon on the Chicago Board of Trade. Futures rose 4.3 percent this month, the first such gain since May. Prices are up 9.3 percent this year.

Gasoline for September delivery tumbled 4.78 cents, or 1.6 percent, to $3.0186 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Dunn said traders are focused on the more actively traded October ethanol contract and how returns that this week touched the highest level this year will affect supply.

Corn for September delivery declined 2.25 cents, or 0.5 percent, to $4.9525 a bushel in Chicago. The more actively traded December contract gained 0.5 cent to $4.82.

Crush Spread

The corn crush spread, or the price difference between a gallon of ethanol and the corn needed to make it, was 59.3 cents, down from 65.68 cents yesterday and this year’s high of 66.23 on Aug. 28, data compiled by Bloomberg show.

“Crush margins are good,” Dunn said.

Ethanol inventories dropped last week to 16.3 million barrels, according to data from the Energy Information Administration.

Production fell 2.8 percent to 820,000 barrels a day last week, the least since March 29, the Energy Department’s statistical arm said in an Aug. 28 report.

Imports have plunged three straight weeks, tumbling 79 percent to 4,000 barrels a day for the seven days ended Aug. 23, EIA said.

Exports of the biofuel slumped 17 percent in June from May to the lowest level since August, 2010, an Energy Information Administration report showed today.

RIN Costs

A 2007 energy law requires refiners to use 13.8 billion gallons of ethanol this year and 14.4 billion in 2014. Compliance is tracked by Renewable Identification Numbers, certificates attached to each gallon of ethanol that are submitted to the government each year and that also can be traded among companies.

Corn-based ethanol RINs added 2 cents to 69 cents, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, rose 2 cents to 74 cents.

In cash market trading, ethanol in the U.S. Gulf climbed 3.5 cents to $2.82 a gallon; in Chicago the additive increased 3.5 cents to $2.725; in New York prices gained 1 cent to $2.81; and on the West Coast the biofuel was unchanged at $2.84 a gallon, data compiled by Bloomberg show.

Chicago’s discount to New York slimmed 2.5 cents to 8.5 cents, while the West Coast’s premium over the Gulf narrowed 3.5 cents to 2 cents, the smallest since July 18.

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