Ethanol Futures Advance as Fuel Consumption Outpaces Supply

November 18, 2013 07:14 AM
Ethanol Futures Advance as Fuel Consumption Outpaces Supply

Ethanol futures climbed for the seventh time in eight days as the highest production rates in 21 months fail to replenish stockpiles.

Futures rose as much as 2 percent as supply has been at record seasonal lows most of this year even as output increased amid cheaper prices for corn, the primary ingredient used to make the additive in the U.S., data compiled by Bloomberg show.

"The front-end has its own set of issues to deal with on supply and demand," said Will Babler, a broker at Atten Babler Risk Management LLC in Galena, Illinois. "Even with really high production rates, supply is still tight."

Denatured ethanol for December delivery jumped 3.2 cents, or 1.8 percent, to $1.809 a gallon at 12:10 p.m. New York time on the Chicago Board of Trade. Futures have dropped 17 percent this year.

Gasoline for December delivery rose 0.13 cent to $2.659 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’s discount to the motor fuel narrowed 3.07 cents to 85 cents a gallon.

Babler said farmers are reluctant to sell their corn at prices that have dropped 40 percent this year. Prices tumbled as a record crop is expected after a drought-damaged harvest last year.

Corn for December delivery slipped 7.5 cents, or 1.8 percent, to $4.145 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.


Corn Crush


The corn crush spread, or the price difference between the cost of a bushel of corn and the price of ethanol was 30 cents, up from 25 cents on Nov. 15, data compiled by Bloomberg show.

Ethanol production rose 2.8 percent to 927,000 barrels a day in the week ended Nov. 8, the highest since Feb. 10, 2012, data compiled by Bloomberg show.

Stockpiles were little changed at 15.2 million barrels, down 15 percent from a year earlier, according to the Energy Department’s statistical arm.

The market is anticipating lower demand for the additive next year, if a Nov. 15 proposal by the Environmental Protection Agency to cut consumption targets is finalized, Babler said.

Refiners would be required to use about 13 billion gallons of corn-based ethanol in gasoline next year, down from 13.8 billion this year and 14.4 billion that was called for when the U.S. instituted the law in 2007.

Ethanol for April delivery traded at an 18.4-cent discount to the December contract.



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