Ethanol Advances as Frigid Midwest Weather Curtails Supply

Ethanol advanced as icy, snowy conditions sweeping across the Midwest caused rail delays and terminal closures that may force companies to reduce operations.

Futures rose 1 percent as Kinder Morgan Inc. said it’s working under force majeure at its Argo, Illinois, ethanol terminal. Union Pacific Corp., BNSF Railway Co. and Norfolk Southern Corp. have also said their operations are affected. Rail is a virtual pipeline for ethanol in the U.S.

“They’re having to dial back because they can’t move production quick enough,” said Mike Blackford, a consultant at INTL FCStone in Des Moines, Iowa. “We’ve had rail issues. With this cold snap all of a sudden you’re shutting down truck, too.”

Denatured ethanol for February delivery climbed 2 cents to $1.944 a gallon on the Chicago Board of Trade.

Gasoline for February delivery gained 3.26 cents, or 1.2 percent, to $2.6786 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Kinder said that it expects the Chicago and Argo terminals to resume full operations early tomorrow.

Ethanol production and supply has been affected by rail congestion in the face of a record corn crop and transport from shale-oil deposits, Blackford said.

Gulf Prices

In cash market trading, ethanol in the U.S. Gulf jumped 20.5 cents to $2.525 a gallon; in New York the additive increased 7 cents to $2.48; in Chicago the biofuel gained 3.5 cents to $2.245; and on the West Coast prices added 1.5 cents to $2.615 a gallon, data compiled by Bloomberg show.

The West Coast’s premium to the Gulf narrowed 19 cents to 9 cents, while Chicago’s discount to New York Harbor expanded 3.5 cents to 23.5 cents.

“Demand has fallen, but on the flipside production is forced to come down,” Blackford said.

Corn for March delivery fell 1.75 cents to $4.26 a bushel in Chicago. One bushel makes at least 2.75 gallons of the fuel. The corn crush spread, or the difference between the cost of corn and the price of ethanol, was 31 cents, up from 29 cents yesterday, data compiled by Bloomberg show.

The U.S. assures compliance with ethanol consumption mandates with Renewable Identification Numbers, tracking certificates attached to each gallon of biofuel and that can be traded among refiners.

Corn-based ethanol RINs fell 1 cent to 30 cents, data compiled by Bloomberg show.

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