Ethanol Leads Gains Among Commodities Amid Rail Car Shortage

March 19, 2014 10:20 AM
 
POET ethanol plant

Ethanol futures jumped to a nine- month high, the biggest gainer among 28 commodities today, amid a shortage of rail cars and a decline in U.S. inventories.

Prices have risen 41 percent in 2014 as producers are asked to pay a "fat" premium of as much as $3,000 to reserve a rail car, the primary mode of transport for the fuel, said Steve Wagner, a market analyst for CHS Hedging Inc.

The frigid winter and competition for space are making it harder to move the fuel. Inventories fell for a fourth week, according to a government report today.

"Some ethanol plants have been waiting for 35, 40 days for a rail car," Wagner said in a telephone interview from Inver Grove Heights, Minnesota. "You can’t get cars and everybody is unhappy."

Denatured ethanol for April delivery rose 12.5 cents, or 4.9 percent, to $2.694 a gallon at 1:31 p.m. New York time on the Chicago Board of Trade. It climbed as much as 5.9 percent. Ethanol soared to the highest since 2006 in New York cash markets.

Today’s gains are the biggest among commodities, followed by Kansas wheat, which rose 3.1 percent. The biofuel lags behind only coffee and lean hogs for the year and is heading to the largest quarterly advance since 2007.

 

Gasoline Discount

 

Ethanol’s discount to gasoline narrowed to 17.95 cents a gallon from 33.38 cents yesterday and 87.48 cents at the end of last year, data compiled by Bloomberg show.

Gasoline for April fell 1 percent to $2.8735 a gallon on the New York Mercantile Exchange. The futures cover reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

An increase in production in the week ended March 14 didn’t keep inventories from slipping, U.S. Energy Information Administration data showed today. Production increased 2.5 percent to 891,000 barrels a day. Inventories dropped 631,000 barrels to 15.3 million, the lowest since Nov. 29 and 17 percent below the year-earlier level.

U.S. stockpiles are equal 17 days of consumption, down from 19 days a month ago, data compiled by Bloomberg Industries show.

Margins to produce ethanol are still good, Renan Pimenta, a Campinas, Brazil-based analyst for FCStone Inc., said. The crush margin, or the cost difference between ethanol and the corn to make it, advanced to a record 71 cents from 64 cents yesterday.

 

Slowing Output

 

"Margins are good, but distillers can’t get the ethanol out to markets," Pimenta said. "The result is some plants are temporarily idling, others reducing capacity and all these things are coming together."

Ethanol gained in all major cash markets. In New York, a gallon was up 49 cents at $4, the highest since June 30, 2006. It climbed 24.5 cents to $2.875 in Chicago, 50 cents to $3.75 on the Gulf Coast and 30 cents to $3.80 on the West Coast.

"Rail logistics issues continued to complicate ethanol movements to both coasts," Geoff Cooper, chief economist at the industry group Renewable Fuels Association, said in an e-mailed report today.

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