Bloomberg News

Ethanol’s Discount to Gasoline Widens on Higher Production Rates

December 20, 2013

Ethanol’s discount to gasoline widened on speculation higher returns to make the fuel will prompt distillers to boost output.

The spread expanded 3.3 cents to 87.11 cents a gallon as the corn crush spread, or the difference between the cost of corn and the price of a gallon of ethanol, based on March contracts, rose to 14 cents from 13 cents yesterday, data compiled by Bloomberg show.

“The margins are still profitable, still pretty good,” said Matt Janney, a broker at Futures International LLC in Chicago. “Production has increased, so that’s a little negative.”

Denatured ethanol for January delivery added 1 cent, or 0.5 percent, to $1.912 a gallon on the Chicago Board of Trade. Prices have dropped 13 percent this year.

Gasoline for January delivery rose 4.3 cents, or 1.6 percent, to $2.7831 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 production has averaged 936,000 barrels a day in December, up 10 percent from the 849,000 barrels a day averaged in the first 11 months of the year, data from the Energy Information Administration show.

“Obviously if you continue at that pace, you’ll have a lot of ethanol,” Janney said.

Low Inventories

Ethanol prices are buoyed by low inventories, he said. Stockpiles were at 15.6 million barrels in the week ended Dec. 13, down 25 percent from the same period a year earlier, according to EIA data.

The additive is made from corn in the U.S., with one bushel making at least 2.75 gallons of the fuel.

Corn for March delivery rose 2.75 cents, or 0.6 percent, to $4.3325 a bushel. Prices have dropped 38 percent this year.

In cash market trading, ethanol in New York rose 2 cents to $2.285 a gallon; in the U.S. Gulf prices gained 2 cents to $2.305; in Chicago the additive jumped 1 cent to $2.195; and on the West Coast the biofuel increased 0.5 cent to $2.495 a gallon, data compiled by Bloomberg show.

New York’s premium to Chicago expanded 1 cent to 9 cents, while the Gulf’s discount to the West Coast slimmed 1.5 cents to 19 cents.

Ethanol consumption is tracked by Renewable Identification Numbers, certificates attached to each gallon that are submitted to the Environmental Protection Agency and that can be traded among refiners.

Corn-based RINs rose 1 cent to 30 cents, 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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