Ethanol Futures Hit One-Year Low as Subsidy Nears Expiration

Source: Mario Parker • Bloomberg  • Posted: Friday, December 16, 2011

Ethanol futures fell to the lowest level in a year as corn dropped and the expiration of a government subsidy approached.

Prices sank as corn declined amid speculation global supply of the grain is adequate to meet demand for the food and biofuel feedstock. A 45-cent tax credit to refiners for each gallon of the biofuel blended into gasoline is set to expire Dec. 31.

“Corn certainly is one issue affecting them,” said Rich Nelson, director of research at Allendale Inc. in McHenry, Illinois. “The second issue is, of course, the lower blending subsidy in front of us and we have seen lower prices. We have that big question in front of us and will have it for the next couple weeks.”

Denatured ethanol for January delivery dropped 0.4 cents to $2.062 a gallon on the Chicago Board of Trade, the lowest price since Dec. 7, 2010. Futures fell for a fifth day, the longest streak of losses since September, and are down 13 percent in 2011, heading for the first yearly decline since 2008.

In cash market trading, ethanol in Chicago increased 2 cents, or 0.9 percent, to $2.19 a gallon and in New York the additive climbed 1.5 cents, or 0.7 percent, to $2.31, according to data compiled by Bloomberg.

Ethanol in the U.S. Gulf rose 1 cent, or 0.4 percent, to $2.335 a gallon and on the West Coast the biofuel dropped 2.5 cents, or 1.1 percent, to $2.30.

Corn for March delivery lost 1.75 cents to $5.79 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.