Bloomberg News

Ethanol Strengthens Versus Gasoline as Shutdowns Spur Purchases

February 11, 2013

Ethanol strengthened against gasoline as mill shutdowns spurred purchases by customers and producers of the biofuel.

The spread narrowed 4.15 cents to 60.53 cents a gallon at 10:39 a.m. New York time as gasoline plunged. More than 1.4 billion gallons of the country’s 14.7 billion of ethanol production have been suspended because of expensive manufacturing costs.

“We’re seeing a lot of producer buying with the shutdowns,” said Jim Damask, a manager at StarFuels Inc. in Jupiter, Florida. “You already have end-users buying and now you have ethanol producers buying. It’s created frenzy.”

Denatured ethanol for March delivery slipped 0.3 cent to $2.415 a gallon on the Chicago Board of Trade. Prices have advanced 10 percent this year.

Gasoline for March delivery dropped 3.85 cents, or 1.3 percent, to $3.0203 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, which is made to be blended with ethanol.

Ethanol companies may have signed contracts to deliver the fuel before they shut plants as a result of higher-than-normal corn prices caused by drought.

“They sold the ethanol already so they need to buy to fulfill commitments,” Damask said. “Sometimes if they shut down the plant they figure it’s cheaper to buy the ethanol than to make it.”

Plants Shut

At least 19 plants have been idled since June because of production costs and a supply glut, according to the Renewable Fuels Association, a Washington-based trade group.

Corn for March delivery gained 2 cents to $7.11 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

The corn crush spread, or the profit that can be made from turning a bushel of corn into ethanol, was minus 16 cents a gallon, up from minus 17 cents Feb. 8 and 23 cents a week ago, data compiled by Bloomberg show.

Ethanol will consume about 42 percent of the 10.78 billion bushels of corn in this year’s harvest, the USDA said Feb. 8, up from 41 percent last year and 40 percent in 2011.

The plant closings have helped ease a glut of the fuel as stockpiles in the week ended Feb. 1 totaled 20 million barrels, 4.6 percent lower than a year earlier, according to the U.S. Energy Information Administration, the statistical agency of the Energy Department.

Production rose 0.5 percent to 774,000 barrels a day from the previous week, the lowest level since the EIA began tracking weekly data for the biofuel in June 2010.

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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