Ethanol’s discount to gasoline strengthens on U.S. corn report

ETHANOL'S DISCOUNT TO GAS future strengthened to the narrowest level in three weeks as a new report showed corn stockpiles were lower than expected.
Posted 1/11/13

CHICAGO - Ethanol’s discount to gasoline futures strengthened to the narrowest level in three weeks after a government report showed that corn stockpiles in the U.S. were lower than analysts expected.

The spread shrank for a third day as the U.S. Department of Agriculture said corn inventories dropped to the least in nine years for December after drought reduced production and animal- feed demand remained strong. Corn inventories totaled 8.03 billion bushels, less than the 8.219 billion average estimate of 26 analysts in a Bloomberg survey.

“A tighter corn balance table means they should slow down production a little bit,” said Mike Blackford, a consultant at INTL FCStone in Des Moines, Iowa. “We should squeeze margins here and that should happen.”

The grain-based additive was 44.56 cents below the price of the motor fuel at 1:25 p.m. New York time based on prompt-month contracts for both commodities. That was less than yesterday’s 54.83 cents and the smallest gap since Dec. 18.

Denatured ethanol for February delivery rose 5 cents, or 2.2 percent, to $2.295 a gallon on the Chicago Board of Trade. Prices have gained 1.2 percent in the past year.

Corn stockpiles were 17 percent smaller on Dec. 1 than a year earlier, the report showed. Analysts were expecting a 15 percent decline. Inventories were 9.647 billion a year earlier.

One bushel of corn makes at least 2.75 gallons of ethanol in the U.S. About 4.5 billion bushels, or 42 percent of this year’s crop, will go toward making the fuel, the USDA said in the report today.

Corn climbs

Corn for March delivery climbed 19 cents, or 2.7 percent, to $7.1775 a bushel in Chicago. Prices are up 22 percent in the past year.

Based on March contracts for corn and ethanol, producers are losing 29 cents on each gallon of the fuel made, up from 27 cents yesterday, according to data collected by Bloomberg. The figures exclude the revenue that can be made from the sale of dried distillers’ grains, a byproduct of ethanol production that can be fed to livestock.

Gasoline for February delivery slumped 5.27 cents, or 1.9 percent, to $2.7406 a gallon on the New York Mercantile Exchange. The contract covers RBOB, which is made to be blended with ethanol before delivery to filling stations.

In cash market trading, ethanol in Chicago was unchanged at $2.20 a gallon, data compiled by Bloomberg shows. In New York, the additive rose 1.5 cents to $2.30.

Ethanol on the West Coast jumped 3.5 cents to $2.37 a gallon. On the U.S. Gulf Coast, the biofuel strengthened 0.5 cent to $2.255.

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