Ethanol Falls to 11-Week Low as Corn Drop May Ease Output Costs

Source: By Mario Parker, Bloomberg • Posted: Friday, September 21, 2012

Ethanol futures fell to an 11-week low in Chicago on speculation that a drop in corn prices will ease production costs.

Futures sank as corn tumbled on concern that rain in the grain-abundant Midwest in August helped quench crops scorched by drought in June and July, boosting yields. Ethanol is made from corn in the U.S.

“There are certain farmers that are finding out their yields are coming out better than anticipated,” said Dan Flynn, a trader at Price Futures Group in Chicago.

Denatured ethanol for October delivery fell 3.5 cents, or 1.5 percent, to $2.247 a gallon on the Chicago Board of Trade, the lowest level since June 29. Futures have gained 2 percent this year.

In cash market trading, ethanol in New York sank 7 cents, or 3 percent, to $2.29 a gallon and in Chicago the biofuel decreased 5.5 cents, or 2.4 percent, to $2.225, data compiled by Bloomberg shows.

Ethanol in the U.S. Gulf declined 5.5 cents, or 2.4 percent, to $2.285 a gallon and on the West Coast the additive was unchanged at $2.39.

Corn for December delivery dropped 10.5 cents, or 1.4 percent, to $7.46 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Valero Energy Corp. (VLO), the third-largest U.S. ethanol producer, said yesterday that it restarted plants in Albion, Nebraska, and Linden, Indiana, this month as the corn harvest gets under way and margins improve.

Gasoline for October delivery surged 7.54 cents, or 2.7 percent, to $2.904 a gallon on the Nymex. The contract covers reformulated gasoline, which is made to be blended with ethanol before delivery to filling stations.

The gain in gasoline expanded its premium to ethanol to 65.7 cents, the highest since June 15, from 54.7 yesterday, making the biofuel more attractive to blend for refiners, which stand to pocket the difference between the two.