Ethanol Extends Gain Third Day on Signs of Production Discipline

Source: Mario Parker • Bloomberg  • Posted: Thursday, February 9, 2012

Feb. 8 (Bloomberg) — Ethanol futures rose to a four-week high on signs that the industry is reducing production.

Futures rose for a third day after Archer Daniels Midland Co., the second-largest U.S. ethanol producer, said it would shutter a plant in North Dakota and the Energy Department reported that output fell to the lowest level in 11 weeks amid negative margins to make the fuel.

“This all started with the ADM announcement,” said Jerrod Kitt, an analyst at the Linn Group in Chicago. “Then today’s report had people saying, ‘Gee, things really are bad enough to start pulling back.’”

Denatured ethanol for March delivery increased 1.3 cents, or 0.6 percent, to $2.224 a gallon on the Chicago Board of Trade, the highest price since Jan. 11. Prices are down 6.8 percent from a year earlier.

In cash market trading, ethanol on the West Coast surged 6.5 cents, or 2.9 percent, to $2.30 a gallon and in the U.S. Gulf the additive gained 3 cents, or 1.4 percent, to $2.245, according to data compiled by Bloomberg.

Ethanol in New York added 3 cents, or 1.3 percent, to $2.265 a gallon and in Chicago the biofuel rose 2.5 cents, or 1.2 percent, to $2.17.

Ethanol production in the U.S. fell 1.7 percent to 923,000 barrels a day last week, the steepest decline since Jan. 6, and the lowest level since Nov. 18, an Energy Department report showed today.

Producers are losing 11 cents per gallon of ethanol, based on current prices for corn and the biofuel and assuming a bushel of corn generates 2.75 gallons of ethanol, according to data compiled by Bloomberg.

 

The biofuel is blended with gasoline to stretch supply and meet federal mandates.

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