Aug. 20 (Bloomberg) -- Ethanol’s discount to gasoline narrowed on speculation supply of corn will be tight before next month’s harvest.
The spread, or price difference, contracted 0.61 cent to 67.82 cents a gallon, as participants in the annual Professional Farmers of America Midwest crop tour estimated higher yields in corn-producing states such as South Dakota and Ohio after inspecting fields. Supplies of corn will be 27 percent lower than a year earlier before the harvest, according to U.S. Agriculture Department estimates.
“Medium to long-term, it looks like there will be plenty of corn,” said Justin Dirico, manager of the biofuels desk at Eagle Energy Brokers LLC in New York. “Short term, it’s bullish with cash corn tough to come by.”
Denatured ethanol for September delivery was unchanged at $2.249 a gallon on the Chicago Board of Trade. Futures have gained 2.7 percent this year.
Gasoline for September delivery decreased 0.61 cent to $2.9272 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.
Corn for September delivery slumped 9.5 cents, or 1.9 percent, to $4.8375 a bushel in Chicago. The more actively traded December contract dropped 10 cents to $4.755.
The corn crush spread, or the cost difference between a gallon of ethanol and the corn needed to make it, based on September contracts, was 49 cents, up from 46 cents yesterday, data compiled by Bloomberg show.
Ethanol for September delivery is trading at a 32.5-cent premium to the October contract, a phenomenon known as backwardation, where prompt prices are higher than later ones.
Farmers responded to last summer’s drought that devastated yields by sowing the most acres of corn since 1936.
“This may lead to record ethanol production, with lower corn prices potentially boosting margins if ethanol prices remain firm,” Bloomberg Industries wrote in a note today.
The government uses tracking certificates, known as Renewable Identification Numbers, or RINs, to determine compliance with mandates to use the fuel.
Corn-based ethanol RINs slipped 4 cents to 76 cents, while advanced RINs, which cover biodiesel and Brazilian sugarcane- based ethanol, dropped 5 cents to 84 cents, data compiled by Bloomberg show.
In cash market trading, ethanol in Chicago was unchanged at $2.335 a gallon, according to data compiled by Bloomberg. The additive slumped 1 cent to $2.49 in New York, while U.S. Gulf prices declined 0.5 cent to $2.425. On the West Coast, ethanol gained 3.5 cents to $2.53 a gallon.
New York Harbor’s premium to Chicago narrowed 1 cent to 15.5 cents, the tightest since Aug. 12, while the Gulf’s discount to the West Coast expanded 4 cents to 10.5 cents, the widest since Aug. 15.
Dirico said ethanol traders are hesitant to place bets before tomorrow’s Energy Information Administration report, scheduled for release at 10:30 a.m. in Washington.
Ethanol output gained 0.5 percent to 857,000 barrels a day in the week ended Aug. 9 from the previous week, while stockpiles sank 1.7 percent to 16.4 million barrels, the lowest since July 5, EIA data show.
--With assistance from Tony C. Dreibus in Chicago. Editors: Bill Banker, David Marino