Bloomberg News

Ethanol’s Discount to Gasoline Expands as Production Costs Ease

November 29, 2012

Ethanol weakened against gasoline for the first time in more than a week as production costs for the biofuel eased.

The grain-based additive’s discount to gasoline widened to 35.9 cents a gallon from 28.79 cents yesterday, based on December futures prices. Ethanol producers saw corn costs decline after the Agriculture Department reported export sales last week tumbled 69 percent from a week earlier.

“Ethanol’s still cheaper than gasoline, they’re blending,” said Jim Damask, a manager at Biofuelsconnect, a Jupiter, Florida-based alternative energy broker. “We’ve seen a flurry of buying, people coming in, getting their needs and then going back out. We’re just a little heavy in supply.”

Denatured ethanol for December delivery slipped 1.8 cents, or 0.7 percent, to settle at $2.428 a gallon on the Chicago Board of Trade, the first decline since Nov. 21. The futures have climbed 10 percent this year.

In cash market trading, ethanol in the U.S. Gulf gained 2.5 cents, or 1 percent, to $2.50 a gallon and in Chicago the biofuel added 2 cents, or 0.8 percent, to $2.445, data compiled by Bloomberg shows.

Ethanol on the West Coast advanced 1.5 cents, or 0.6 percent, to $2.595 a gallon and in New York the additive increased 1 cent, or 0.4 percent, to $2.535.

Gasoline Futures

Gasoline for December delivery rose 5.31 cents, or 1.9 percent, to settle at $2.787 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Ethanol-blended gasoline made up about 93 percent of the total U.S. gasoline pool in the week ended Nov. 23, a seven-week high, Energy Department data show.

Stockpiles of the fuel were at 18.3 million barrels, 7.6 percent higher than a year earlier, according to the government.

Corn for March delivery fell 5.25 cents, or 0.7 percent, to $7.5875 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Based on December contracts for corn and ethanol, producers are losing 30 cents on each gallon of the fuel made, down 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.

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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