Ethanol Gains Most in Two Months Versus Gasoline on Corn Report

January 11, 2013 11:00 PM

Copyright 2013 Bloomberg.

By Mario Parker

Ethanol’s discount to gasoline futures strengthened the most in two months after a government report showed that corn stockpiles in the U.S. were lower than analysts expected.

The spread shrank 9.98 cents as the U.S. Department of Agriculture said corn inventories dropped to the least in nine years for December after drought reduced production and animal- feed demand remained strong. Corn inventories totaled 8.03 billion bushels, less than the 8.219 billion average estimate of 26 analysts in a Bloomberg survey.

"A tighter corn balance table means they should slow down production a little bit," said Mike Blackford, a consultant at INTL FCStone in Des Moines, Iowa. "We should squeeze margins here and that should happen."

The grain-based additive was 44.85 cents below the price of the motor fuel based on prompt-month contracts for both commodities. That was less than yesterday’s 54.83 cents, the smallest gap since Dec. 18 and ethanol’s biggest jump versus gasoline since Nov. 7.

Denatured ethanol for February delivery rose 4.6 cents, or 2 percent, to settle at $2.291 a gallon on the Chicago Board of Trade, the highest price since Dec. 14. It was the steepest one- day gain since Oct. 11. Prices have advanced 1.1 percent in the past year.

Corn stockpiles were 17 percent smaller on Dec. 1 than a year earlier, the report showed. Analysts were expecting a 15 percent decline. Inventories were 9.647 billion a year earlier.

One bushel of corn makes at least 2.75 gallons of ethanol in the U.S. About 4.5 billion bushels, or 42 percent of this year’s crop, will go toward making the fuel, the USDA said in the report today.

Corn Climbs

Corn for March delivery climbed 10 cents, or 1.4 percent, to $7.0875 a bushel in Chicago. Prices are up 20 percent in the past year.

Based on March contracts for corn and ethanol, producers are losing 27 cents on each gallon of the fuel made, unchanged from yesterday, according to data collected by Bloomberg. The figures exclude the revenue that can be made from the sale of dried distillers’ grains, a byproduct of ethanol production that can be fed to livestock.

Gasoline for February delivery slumped 5.38 cents, or 1.9 percent, to $2.7395 a gallon on the New York Mercantile Exchange. The contract covers RBOB, which is made to be blended with ethanol before delivery to filling stations.

In cash market trading, ethanol in Chicago rose 7.5 cents to $2.275 a gallon, data compiled by Bloomberg shows. In New York, the additive rose 8 cents to $2.365.

Ethanol on the West Coast jumped 5.5 cents to $2.39 a gallon. On the U.S. Gulf Coast, the biofuel strengthened 7.5 cent to $2.325. 

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