Bloomberg News

Ethanol Weakens Against Gasoline on Speculation of Output Gain

April 18, 2013

Ethanol’s discount to gasoline expanded from the lowest level in four months on speculation output will rise to meet federal demand targets.

The spread widened 1.61 cents to 28.71 cents a gallon at 12:15 p.m. New York time a day after the Energy Information Administration said ethanol output fell 2.6 percent to 832,000 barrels a day last week. Production through April 12 averaged 804,000 barrels a day, or 12.3 billion gallons on an annual basis, 11 percent lower than the 13.8 billion gallons refiners are required to use this year.

“Obviously it’s gyrating around, but the production trend is higher,” said Mike Blackford, a consultant at INTL FCStone in Des Moines, Iowa.

Denatured ethanol for May delivery slipped 0.7 cent to $2.451 a gallon on the Chicago Board of Trade. Prices have gained 12 percent this year.

Gasoline for May delivery climbed 0.91 cent, or 0.3 percent, to $2.7381 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’s discount to gasoline rebounded from the smallest differential since Dec. 10. Blackford said the higher value of Renewable Identification Numbers, or RINs, the certificates attached to each gallon of biofuel produced that refiners and the government use to show compliance with the government program, encourages use.

RINs Values

Corn-ethanol-based RINs were unchanged yesterday at 71 cents, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, sank 7 cents to 79 cents.

Production hasn’t rebounded to the levels seen before last summer’s drought that devastated corn yields and eroded margins to manufacture the fuel, Blackford said.

Corn for May delivery fell 15.25 cents, or 2.3 percent, to $6.4525 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

The corn crush spread, representing gains or losses from turning corn into ethanol and based on May contracts, was 11 cents a gallon, up from 6 cents yesterday. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

Ethanol output will reach 13 billion gallons this year and 14.1 billion next year, the Energy Department’s analytical arm forecast in its April 9 Short-Term Energy Outlook.

The Agriculture Department, in the April 10 World Agricultural Supply and Demand Estimates report. raised its projection for corn to be used to make the biofuel to 4.55 billion bushels from an earlier estimate of 4.5 billion.

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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