Ethanol’s Discount to Gasoline Widens

December 26, 2012 10:39 AM
Ethanol’s Discount to Gasoline Widens

By Mario Parker, Copyright 2012 Bloomberg.

Dec. 26 (Bloomberg) -- Ethanol’s discount to gasoline widened to the largest gap in three months as the cost of producing the biofuel eased.

Prices followed corn lower after a U.S. Agriculture Department report showed export inspections for the grain dropped 66 percent from a year earlier to 13.475 million bushels, easing demand for the ethanol feedstock.

"Obviously, it’s an ugly day in the grains complex," said Jason Ward, an analyst at Northstar Commodity Investments LLC in Minneapolis.

Ethanol’s discount to the motor fuel expanded to 60.98 cents a gallon based on January contracts, the widest since Sept. 28. It was 52.26 cents Dec. 24 and 18.79 cents Dec. 6. The differential has averaged about 61 cents this year.

Denatured ethanol for January delivery fell 2.2 cents, or 1 percent, to settle at $2.206 a gallon on the Chicago Board of Trade. Futures have declined 8.4 percent this month and are little changed this year.

In cash market trading, ethanol in Chicago slipped 2.5 cents, or 1.1 percent, to $2.185 a gallon and in the U.S. Gulf the additive decreased 2.5 cents to $2.24, data compiled by Bloomberg show.

Ethanol on the West Coast declined 2 cents to $2.335 a gallon and in New York the biofuel lost 0.5 cent to $2.315.

Gasoline Gains

Gasoline for January delivery rose 6.52 cents, or 2.4 percent, to $2.8158 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

The motor fuel gained as President Barack Obama cut short his vacation to return to Washington for budget talks tomorrow in an effort to strike a deal to avoid automatic spending cuts and tax increases known as the fiscal cliff.

Corn for March delivery slumped 11 cents, or 1.6 percent, to $6.9325 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Based on March contracts for corn and ethanol, producers are losing 29 cents on each gallon of the fuel made, down from 30 cents Dec. 24, excluding the revenue that can be pocketed from the sale of dried distillers’ grains, a byproduct of ethanol production that can be fed to livestock, according to data collected by Bloomberg.


--With assistance from Jeff Wilson in Chicago. Editors: Charlotte Porter, David Marino


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