Bloomberg News

Ethanol Rises Second Day as Losses Portend More Plant Shutdowns

November 09, 2012

Ethanol rose for a second day in Chicago on speculation that production losses will force more plants to halt operations.

Futures gained as producers stand to lose 31 cents on each gallon of the fuel made, based on December contracts for corn and ethanol, compared with a 26-cent profit a year earlier, data compiled by Bloomberg show. That excludes revenue from the sale of dried distillers’ grains, a byproduct of making the biofuel that can be fed to livestock.

“It’s pretty bad,” said Will Babler, a broker at Atten Babler Risk Management LLC in Galena, Illinois. “As negative as they are, it’s going to continue to take plants offline.”

Denatured ethanol for December delivery rose 1.5 cents, or 0.6 percent, to $2.381 a gallon on the Chicago Board of Trade, the highest price since Nov. 1. Futures have jumped 8.1 percent this year.

In cash market trading, ethanol in New York climbed 3 cents, or 1.2 percent, to $2.50 a gallon and in Chicago the additive increased 3 cents, or 1.3 percent, to $2.38, according to data collected by Bloomberg.

Ethanol in the U.S. Gulf advanced 2.5 cents, or 1 percent, to $2.44 a gallon and on the West Coast the biofuel gained 2.5 cents, or 1 percent, to $2.545.

The fuel needs higher prices to encourage production, said Jerrod Kitt, an analyst at Linn Group in Chicago.

U.S. Requirements

A 2007 energy law called the Renewable Fuels Standard requires the U.S. to use 13.2 billion gallons of ethanol this year and 15 billion by 2015.

At least 10 plants have been idled as the industry wrestles with higher-than-normal corn costs in the aftermath of the worst U.S. drought since the 1950s.

About 42 percent of the 10.7 billion bushels of corn U.S. farmers will harvest this year will be used to produce ethanol, the Agriculture Department said today. Last year, farmers grew 12.358 billion bushels and 40 percent was used to make the biofuel.

Ethanol prices have also suffered from lower gasoline consumption, leaving a smaller pool from which the biofuel could be blended.

U.S. gasoline demand last week fell 6.1 percent, the most since Jan. 7, 2005, Energy Department data show, after Hurricane Sandy shut filling stations and kept drivers off the road in the population-dense East Coast.

Gasoline Futures

Gasoline for December delivery rose 9.19 cents, or 3.5 percent, to $2.6992 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, which is made to be blended with ethanol before delivery to filling stations.

Ethanol’s discount to the motor fuel expanded to 31.82 cents from 24.13 cents yesterday, boosting the biofuel’s appeal for refiners to use more in an effort to pocket the spread between the two. Gasoline traded at a premium of 99.8 cents to ethanol as recently as Sept. 28.

Corn for December delivery slipped 2.5 cents, or 0.3 percent, to $7.3875 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Sugar prices near the lowest level in two years may increase exports from Brazil, where ethanol is made from the sweetener, Babler said.

Sugar production in Brazil’s main growing region climbed 73 percent to 2.55 million metric tons in the second half of October, industry association Unica said yesterday.

Ethanol imports in the week ended Nov. 2 averaged 60,000 barrels a day, compared to none a year earlier, the Energy Department said Nov. 7.

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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