Bloomberg News

Ethanol Futures Gain on Gasoline Amid Higher Costs Before Summer

May 17, 2013

Ethanol strengthened against gasoline for the first time in four days as the summer driving season neared while production costs rose.

The spread, or price difference, narrowed 1.83 cents to 23.59 cents a gallon on concern that corn, the primary U.S. feedstock for the biofuel, will be more difficult to obtain as farmers hold supplies while planting. Renewable Information Numbers were mixed.

“The farmers are getting in the fields and not willing to let go of corn,” said Shawn McCambridge, senior grain analyst at Jefferies Bache LLC in Chicago. “From the ethanol perspective, with the spread to unleaded gasoline we should see added demand strength.”

Denatured ethanol for June delivery rose 4.3 cents, or 1.6 percent, to $2.671 a gallon on the Chicago Board of Trade. Futures have gained 22 percent in the past year.

Gasoline for June delivery advanced 2.47 cents, or 0.9 percent, to $2.9069 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 for July delivery climbed 11.25 cents, or 1.8 percent, to $6.5275 a bushel in Chicago.

McCambridge said ethanol will get a boost when the U.S. summer vacation season begins with next weekend’s Memorial Day Holiday. Lower supplies of the fuel will aid gains, he said.

Supply Decline

Ethanol stockpiles last week fell 2.5 percent to 16.4 million barrels, the lowest since December 2010, a May 15 Energy Information Administration report showed.

Production was down 5.2 percent to 857,000 barrels a day in the week ended May 10 from a year earlier, said the EIA, the Energy Department’s analytical arm.

Companies across the Midwest shuttered operations or reduced output as they dealt with higher corn costs caused by last summer’s drought, the worst since the 1930s.

U.S. farmers plan to plant 97.3 million acres of corn this year, the most since 1936, the Agriculture Department said in a March 28 forecast.

The corn crush spread for July was 17 cents, down from 18 cents yesterday. The spread was minus 35 cents on Dec. 31. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

Corn-based ethanol Renewable Identification Numbers for 2013, or RINs, climbed 0.2 percent to 83.76 cents as of 4:37 p.m. New York time, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, fell 0.3 percent to 89.88 cents.

Spot Market

In cash market trading, ethanol rose 14.5 cents to $2.83 cents a gallon on the Gulf Coast, 6.5 cents to $2.81 in New York, 6 cents to $2.815 on the West Coast and 5.5 cents to $2.685 a gallon in Chicago, data compiled by Bloomberg show.

Gulf Coast ethanol gained 8.5 cents to trade 1.5 cents above the West Coast, the first premium since Jan. 18, 2012, while Chicago’s discount to New York Harbor expanded 1 cent to 12.5 cents.

U.S. refiners haven’t made any foreign purchases of the biofuel since April 19, the longest such stretch since the period ended March 2, 2012, EIA data show.

Ethanol in Sao Paulo cost $2.59 a gallon last week, data compiled by Bloomberg 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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