Ethanol’s discount to gasoline expanded on speculation that the longest streak of positive returns for making the biofuel since 2011 will prompt companies to boost output.
The spread widened 1.06 cents to 36.17 cents a gallon at 11 a.m. New York time as the corn crush spread, or the cost difference between a gallon of ethanol and the corn needed to make it, grew to 6 cents, compared with minus 33 cents on Jan. 2, data compiled by Bloomberg show.
“Ethanol producers will keep as much of their ethanol capacity producing as long as there’s a profit,” said Larry Johnson, owner of LLJ Consulting and Business Development in Cologne, Minnesota. “There’s an operating margin. Profit is better than most of last year.”
Denatured ethanol for July delivery rose 0.6 cent to $2.511 a gallon on the Chicago Board of Trade. Prices are up 15 percent this year.
Gasoline for July delivery advanced 1.66 cents, or 0.6 percent, to $2.8727 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 94 percent of the total U.S. gasoline pool on June 7, up from 89 percent the previous week, EIA said.
Production has climbed 15 percent to 884,000 barrels a day in the week ended June 7 from a record-low 770,000 barrels a day in January, data from the Energy Information Administration show.
Stockpiles of the biofuel that week fell 2.6 percent to 16 million barrels, the lowest level in records going back to June 2010, said the EIA, the Energy Department’s analytical arm.
Last summer’s drought pushed corn prices to a record and forced ethanol companies to reduce operations.
Corn for July delivery fell 0.75 cent to $6.6775 a bushel in Chicago.
Johnson said he expects ethanol production to increase gradually during the summer and into the corn harvest in September.
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