Ethanol Drops to Lowest in Three Years on Signs of Higher Output

01:00PM Oct 08, 2013
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Discount to gasoline expands on speculation the corn harvest will enable distillers to increase production of the biofuel.

Ethanol dropped to the lowest price in more than three years, expanding its discount to gasoline, on speculation the corn harvest will enable distillers to increase production of the biofuel.

The spread, or price difference, widened 2.75 cents to 96.66 cents a gallon at 11:03 a.m. New York time as the corn harvest, which started in September and ends in November, will lower costs for makers of the fuel. Output has risen 14 percent through Sept. 27 from a record low in January, data from the Energy Information Administration show.

"The general trend is going to increase from here," said Mike Blackford, a consultant at Intl FCStone in Des Moines, Iowa.

Denatured ethanol for November delivery fell 1.2 cents, or 0.7 percent, to $1.675 a gallon on the Chicago Board of Trade after touching $1.668, the lowest price since July 2010. Futures have dropped 24 percent this year.

Gasoline for November delivery rose 1.55 cents, or 0.6 percent, to $2.6416 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 is made from corn in the U.S., and about 12 percent of the crop was harvested as of Sept. 27, according to the Agriculture Department.

More recent data isn’t available because of the partial government shutdown. Blackford said that’s contributed to lower ethanol prices, as traders don’t have access to more up-to-date information on the market.

He also said traders expect the shutdown to cut demand for the additive.

The USDA estimated last month that the corn crop will reach a record 13.8 million bushels.

Corn for December delivery declined 7 cents, or 1.6 percent, to $4.4225 a bushel in Chicago. The December corn crush spread of corn to ethanol was break-even, up from minus 1 cent yesterday.