Ethanol Discount to Gasoline Grows as Harvest Reaches 84%

Ethanol’s discount to gasoline expanded as the U.S. corn harvest progressed, increasing supplies and lowering costs of the raw material used to make the biofuel.

Gasoline rose more than ethanol, widening the spread by 1.46 cents to 85.9 cents. Corn growers harvested 84 percent of the crop as of Nov. 10, up from 73 percent a week earlier, the U.S. Agriculture Department said yesterday. The department projects a harvest of 13.989 billion bushels, the largest ever.

“You have record crops being harvested or planted everywhere in the world,” Martinho Ono, chief executive officer of Sao Paulo-based brokerage SCA Ethanol do Brasil, said in a telephone interview.

Ethanol advanced 2.7 cents, or 1.5 percent, to $1.769 a gallon on the Chicago Board of Trade, gaining for a fifth straight session, the longest winning streak since the seven days ended May 1. Prices have dropped 19 percent this year.

Gasoline for December delivery climbed 4.16 cents, or 1.6 percent, to $2.628 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline made to be blended with ethanol before delivery to filling stations.

The U.S. Environmental Protection Agency is scheduled to release a proposal for the use of renewable fuels this month. The agency may reduce the federal mandate to 15.21 billion gallons in 2014 from 18.15 billion established by a 2007 law, according to a draft document dated Aug. 23 provided to Bloomberg.

EPA Proposal

“I guess prices would have been rising more, if it were not for the EPA,” Ono said.

Bets that ethanol prices will drop, in futures for four of the most-traded contracts, outnumbered long contracts by 5.7 percent in the week ended Nov. 5, the most on record, according to data from the Commodity Futures Trading Commission compiled by Bloomberg Industries.

The Energy Information Administration will report its weekly changes in stockpiles and output tomorrow. Inventories increased 1.4 percent to 15.2 million barrels in the week ended Nov. 1, while production declined 1 percent to 902,000 barrels a day, the EIA said Nov. 6.

Corn for December delivery retreated 2.5 cents, or 0.6 percent, to $4.2975 a bushel in Chicago. One bushel of the grain makes at least 2.75 gallons of ethanol.

Ethanol Certificates

The crush margin rose to 21 cents a gallon from 17 cents yesterday. The EPA uses Renewable Identification Numbers, or RINs, tracking certificates attached to each gallon of biofuel to track compliance with the mandate.

Corn-based RINs decreased 1.5 cents to 20 cents, while advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol added 1 cent to 23 cents.

In cash market trading, ethanol climbed 5 cents to $2.25 a gallon in New York, 9 cents to $1.95 in Chicago, 9 cents to $2.04 on the Gulf Coast and 1.5 cents to $1.975 on the West Coast, data compiled by Bloomberg show.

West Coast ethanol’s discount to the Gulf was 6.5 cents, compared with a premium of 1 cent yesterday, while Chicago’s discount to New York narrowed 4 cents to 30 cents.

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