Bloomberg News

Ethanol Weakens Against Gasoline on Slack Use and Ample Supply

November 14, 2012

Ethanol futures in Chicago weakened against gasoline on reduced demand and ample supply.

The additive’s discount to the motor fuel expanded to 33.6 cents a gallon from 31.68 cents yesterday, based on December futures prices. Gasoline’s premium was 99.8 cents on Sept. 28.

Ethanol stockpiles of 18.1 million barrels in the week ended Nov. 2 were 10 percent higher than a year earlier, according to Energy Department data released Nov. 7. Consumption of gasoline fell the most since Jan. 7, 2005, after Hurricane Sandy shut filling stations and kept drivers off the roads in the heavily populated U.S. Northeast.

“The underlying fundamentals aren’t changing that much and that’s why the price isn’t changing that much,” said Mike Blackford, a consultant at INTL FCStone in Des Moines, Iowa.

Denatured ethanol for December delivery climbed 0.6 cent, or 0.3 percent, to $2.343 a gallon on the Chicago Board of Trade. Futures have risen 6.4 percent this year.

Gasoline for December delivery advanced 2.52 cents, or 1 percent, to $2.679 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.

Corn for March delivery gained 3 cents, or 0.4 percent, to $7.2925 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Losing Money

Based on December contracts for corn and ethanol, producers are losing 30 cents on each gallon of the fuel made, up from 29 cents on yesterday, excluding the revenue that can be made from the sale of dried distillers’ grains, a byproduct of ethanol production that can be fed to livestock, data compiled by Bloomberg show.

Companies have tempered production because of price declines. New Energy Corp., operator of an ethanol plant in South Bend, Indiana, filed for bankruptcy protection Nov. 9 with plans to sell its assets.

Ethanol production has fallen 14 percent this year to 827,000 barrels a day, or 12.3 billion gallons on an annualized basis, as of Nov. 2, Energy Department data show.

The agency plans to release supply data at 11 a.m. tomorrow in Washington, a day later than usual because of the Veterans Day holiday on Nov. 12.

Ethanol prices “can’t go a lot lower or it shuts too much production and it can’t go too high because people would come online and produce too much,” Blackford said. “The market’s doing what it should be doing, which is staying flat.”

Prices would rise if imports waned and demand from foreign buyers increased, he said.

Ethanol exports in August, the most recent month for which data is available from the Energy Department, averaged 39,000 barrels a day, the lowest level since November 2010.

The country became a net importer of ethanol in August for the first time since November 2010, according to the Energy Department.

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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