Ethanol Snaps Two-Day Losing Streak on Higher Production Costs

Source: Mario Parker • Bloomberg  • Posted: Friday, February 17, 2012

Feb. 16 (Bloomberg) — Ethanol futures in Chicago rose for the first time in three days on signs of higher manufacturing costs caused by corn export demand.

Prices gained after the Agriculture Department said U.S. exporters sold 1.07 million metric tons of corn in the week ended Feb. 9, the most since October. The grain is used to make ethanol.

“Ethanol prices were able to make small gains” while still not rising enough relative to corn to help margins, Justin Dirico, a senior ethanol trader at SCB & Associates LLC in Chicago, wrote in an emailed note to clients.

Denatured ethanol for March delivery increased 0.6 cent, or 0.3 percent, to $2.202 a gallon on the Chicago Board of Trade. Prices are down 9.8 percent from a year ago.

Ethanol 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.

In cash market trading, ethanol was unchanged in Chicago at $2.16 a gallon, in the U.S. Gulf at $2.225 and on the West Coast at $2.285 a gallon, according to data compiled by Bloomberg.

Ethanol in New York slid 0.5 cent to $2.25 a gallon.

Corn futures for May delivery rose 1.4 percent to settle at $6.3975 a bushel at 1:15 p.m. on the Chicago Board of Trade. Earlier, the price touched $6.26, the lowest for a most-active contract since Jan. 25.

Ethanol is blended with gasoline to augment supply and meet federal mandates.

There are 209 ethanol distilleries in the U.S., with the capacity to produce 14.8 billion gallons of the biofuel, annually, according to the Renewable Fuels Association, a Washington-based trade group.