Bloomberg News

Ethanol Weakens Versus Gasoline on Ample Supply and Lower Costs

December 10, 2012

Ethanol weakened against gasoline on ample supply and lower costs to produce the biofuel.

The difference between the two fuels widened to 24.81 cents from 22.24 cents Dec. 7, based on futures settlement prices. The spread has averaged 61.84 cents this year, according to data compiled by Bloomberg.

An Energy Department report last week showed ethanol stockpiles in the seven days ended Nov. 30 surged 5.4 percent to 19.3 million barrels, the highest level since July 27, while production climbed 4 percent to 835,000 barrels a day, the highest level since June 29.

“Since we saw the DOE report last week it feels like the trade has backed off,” said Mike Blackford, a consultant at INTL FCStone in Des Moines, Iowa. “Production rates are where they need to be. Demand could be better. We have enough.”

Denatured ethanol for January delivery dropped 2.5 cents, or 1.1 percent, to $2.35 a gallon on the Chicago Board of Trade, the lowest price since Nov. 15. Futures have climbed 6.7 percent this year.

In cash market trading, ethanol in New York added 3 cents, or 1.2 percent, to $2.525 a gallon and in Chicago the additive jumped 3 cents to $2.425, data compiled by Bloomberg show.

Ethanol in the U.S. Gulf climbed 2 cents to $2.48 a gallon and on the West Coast the additive decreased 0.5 cent to $2.515.

Gasoline for January delivery gained 0.7 cent to settle at $2.5981 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Corn Futures

Corn for March delivery fell 7.25 cents, or 1 percent, to $7.30 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Ethanol producers have cut supply as corn prices jumped 12 percent this year because of the worst drought in 56 years.

Based on March contracts for corn and ethanol, producers are losing 30 cents on each gallon of the fuel made, unchanged from Dec. 7, 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.

Companies have also faced increased competition from imports as a 54-cent tariff on Brazilian supply expired in 2011 and distillers in that market, who use sugarcane, have cheaper manufacturing costs, Blackford said.

Ethanol imports rose to 92,000 barrels a day in the week ended Nov. 30, from 27,000 the previous week and 12,000 a year earlier, Energy Department data show.

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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