Bloomberg News

Ethanol’s Discount to Gasoline Narrows to Two-Week Low on Costs

November 27, 2012

Ethanol strengthened against gasoline on higher corn prices, reducing the motor fuel’s premium to a two-week low.

The grain-based additive’s discount to gasoline contracted to 29.41 cents a gallon, the least since Nov. 8, from 32.03 cents yesterday, based on December futures prices. The difference was 99.8 cents on Sept. 28.

Ethanol rose with corn on concern that the worst U.S. winter-wheat conditions in at least 27 years will increase demand for corn to be used to feed livestock. One bushel of corn makes at least 2.75 gallons of ethanol.

“I’m bullish,” said Dan Flynn, a trader at Price Futures Group in Chicago. “Not a strong bull, but bullish. We have strength in corn and they definitely dance to the same tune.”

Denatured ethanol for December delivery rose 3.2 cents, or 1.3 percent, to settle at a six-week high of $2.438 a gallon on the Chicago Board of Trade. Prices are up 11 percent this year.

Gasoline for December delivery advanced 0.58 cent to $2.7321 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

The Energy Department will probably report tomorrow that gasoline supplies rose 900 million barrels last week, according to the median estimate of 11 analysts in a survey by Bloomberg.

Ethanol-blended gasoline made up about 89 percent of the total U.S. gasoline pool in the week ended Nov. 16, Energy Department data show, the lowest level since Sept. 14.

Corn for March delivery climbed 12.75 cents, or 1.7 percent, to $7.64 a bushel in Chicago, also a six-week high.

In cash market trading, ethanol was unchanged in New York at $2.50 a gallon, in Chicago at $2.40, in the U.S. Gulf at $2.455 and on the West Coast at $2.57, data compiled by Bloomberg shows.

Based on December contracts for corn and ethanol, producers are losing 33 cents on each gallon of the fuel made, up from 31 cents yesterday, excluding the revenue that can be pocketed from the sale of dried distillers’ grains, a byproduct of ethanol production that can be fed to livestock, according to data collected by Bloomberg.

Ethanol output in the week ended Nov. 16 was 811,000 barrels a day, below the 2012 average of 864,000.

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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