Ethanol Futures Advance as Fuel Consumption Outpaces Supply

Ethanol futures climbed as the highest production rate in 21 months failed to replenish stockpiles.

Futures rose 1.6 percent. Supply has been at record seasonal lows most of this year even as output increased amid cheaper prices for corn, the primary ingredient used to make the additive in the U.S., data compiled by Bloomberg show.

“The front end has its own set of issues to deal with on supply and demand,” said Will Babler, a broker at Atten Babler Risk Management LLC in Galena, Illinois. “Even with really high production rates, supply is still tight.”

Denatured ethanol for December delivery jumped 2.8 cents to $1.805 a gallon on the Chicago Board of Trade, the most since Oct. 28. Futures have dropped 18 percent this year.

Gasoline for December delivery fell 0.09 cent to $2.6568 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’s discount to the motor fuel narrowed 2.89 cents to 85.18 cents a gallon.

Babler said farmers are reluctant to sell their corn at prices that have dropped 40 percent this year. Prices tumbled as a record crop is expected after a drought-damaged harvest in 2012.

Corn for December delivery slipped 10 cents, or 2.4 percent, to $4.12 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Corn Crush

The corn crush spread, or the price difference between the cost of a bushel of corn and the price of ethanol was 31 cents, up from 25 cents on Nov. 15, data compiled by Bloomberg show.

Ethanol production rose 2.8 percent to 927,000 barrels a day in the week ended Nov. 8, the most since Feb. 10, 2012, data compiled by Bloomberg show.

Stockpiles were little changed at 15.2 million barrels, down 15 percent from a year earlier, according to the Energy Department’s statistical arm.

The market is anticipating lower demand for the additive next year, if a Nov. 15 proposal by the Environmental Protection Agency to cut consumption targets is finalized, Babler said.

Refiners would be required to use about 13 billion gallons of corn-based ethanol in gasoline next year, down from 13.8 billion this year and 14.4 billion that was called for when the U.S. instituted the law in 2007.

April Contract

Ethanol for April delivery traded at an 18.2-cent discount to the December contract.

The EPA tracks compliance with the government mandate with Renewable Identification Numbers, or RINs, certificates attached to each gallon of biofuel that are submitted to the agency and that also can be traded among refiners.

Corn-based ethanol RINs fell 1 cent to 17 cents, the lowest level since Jan. 24, while advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, sank 1 cent to 21 cents, the least since Nov. 21, 2012.

In cash market trading, ethanol on the West Coast jumped 19.5 cents to $2.345 a gallon, data compiled by Bloomberg show. Iin the U.S. Gulf, prices gained 19.5 cents to $2.325. The additive increased 17.5 cents to $2.225 in Chicago. In New York, the biofuel rose 6 cents to $2.35 a gallon.

West Coast ethanol’s premium to the Gulf was unchanged at 2 cents, while Chicago’s discount to New York Harbor narrowed 11.5 cents to 12.5 cents.

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