Ethanol Drops Most in Three Weeks Versus Gasoline on Output Gain

Source: By Mario Parker, Bloomberg • Posted: Thursday, April 25, 2013

Ethanol tumbled the most in three weeks versus gasoline as lower corn costs and improving returns to make the fuel entice companies to resume output.

The spread, or price difference, expanded 3.82 cents to 32.72 cents a gallon at 11:40 a.m. New York time, the biggest one-day widening since April 1. Poet LLC and Abengoa SA (ABG) said yesterday they resumed output at distilleries that were closed after drought in the Midwest boosted corn prices to a record and increased manufacturing costs.

“This makes sense,” said Jim Damask, a manager at Starfuels Inc. in Jupiter, Florida. “When prices got a little high, a lot more product became available. There was some margin that they saw and they turned the plants back on.”

Denatured ethanol for May delivery fell 1.5 cents, or 0.6 percent, to $2.415 a gallon on the Chicago Board of Trade. Prices have gained 10 percent this year.

Gasoline for May delivery advanced 2.32 cents, or 0.9 percent, to $2.7422 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 production rose 2.5 percent to 853,000 barrels a day in the week ended April 19, the highest since April 5, a report from the Energy Information Administration showed today.

Stockpiles increased 0.5 percent to 17.6 million barrels, the Energy Department’s analytical arm said. That’s down 19 percent from a year earlier.

Corn Declining

Corn has dropped 14 percent from the 2013 high of $7.4125 a bushel on rising inventory estimates and projections that farmers would boost planting to the most since 1936. Futures for May delivery rose 2 cents, or 0.3 percent, to $6.405 a bushel today in Chicago. One bushel makes at least 2.75 gallons of ethanol.

The corn crush spread was 9 cents a gallon, down from 11 cents yesterday. That compares to minus 35 cents on Dec. 31. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

Ethanol-blended gasoline made up about 93 percent of the total U.S. gasoline pool, the lowest level since March 29 and down from 94 percent the previous week, the EIA report showed today.

The U.S. made foreign purchases of the fuel for the first time in three weeks. Imports were 39,000 barrels a day in the week ended April 19, up from 11,000 a year earlier.