Bloomberg News

Ethanol Rises a Fourth Day on Concern Corn Costs to Erode Supply

July 17, 2012

Ethanol futures rose a fourth day in Chicago, reaching an eight-month high, on concern costlier corn prices caused by a drought in the U.S. will curtail supply.

Prices gained a day after the Agriculture Department said about 31 percent of the U.S. corn crop was in good or excellent condition as of July 15, compared with 66 percent a year earlier. Ethanol producers have responded to a surge in feedstock costs by shuttering output, sending output to the lowest level in two years.

“The market’s fearing more production declines,” said Jerrod Kitt, an analyst at Linn Group in Chicago.

Denatured ethanol for August delivery rose 2 cents, or 0.8 percent, to settle at $2.689 a gallon on the Chicago Board of Trade, the highest price since Nov. 16. Prices have gained 22 percent this year.

In cash market trading, ethanol in Chicago jumped 3 cents, or 1.1 percent, to $2.66 a gallon and in the U.S. Gulf the additive increased 3 cents, or 1.1 percent, to $2.72, according to data compiled by Bloomberg.

Ethanol in New York rose 2 cents, or 0.7 percent, to $2.775 a gallon and on the West Coast the biofuel surged 9.5 cents, or 3.4 percent, to $2.905.

Corn for December delivery fell 1.25 cents to $7.7125 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Distillers are losing 19 cents on each gallon of ethanol made based on the September contracts for the fuel and corn, according to data compiled by Bloomberg.

The U.S. is required to use 13.6 billion gallons of renewable fuels such as ethanol this year under a government mandate, known as the Renewable Fuels Standard.

Gasoline for August delivery fell 0.97 cent, or 0.3 percent, to $2.845 a gallon on the New York Mercantile Exchange. Prices have gained 5.9 percent this year.

The fuel’s premium to ethanol fell to 15.6 cents, the lowest level since Dec. 5, as corn costs boosted the biofuel.

To contact the reporter on this story: Mario Parker in Chicago at mparker22@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net


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