Dec. 12 (Bloomberg) -- Ethanol plummeted to a three-week low with output at the highest level since January 2012.
Futures dropped for a third day, falling 5.2 percent. The Energy Information Administration reported yesterday that output increased 3.4 percent to 944,000 barrels a day in the week ended Dec. 6. Stockpiles swelled to a seven-week high.
“When you project that kind of production forward, it presents a much more comfortable environment than what we’ve had,” said Jerrod Kitt, an analyst at Linn Group in Chicago.
Denatured ethanol for January delivery slumped 10.1 cents to settle at $1.83 a gallon on the Chicago Board of Trade, the lowest since Nov. 18. Futures have fallen 16 percent this year.
Gasoline for January delivery fell 2.63 cents, or 1 percent, to $2.6348 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.
Ethanol’s discount to the motor fuel expanded 7.47 cents to 80.48 cents a gallon.
“Part of the problem was that you had a one-way street for so long,” Kitt said. “There were too many longs going into the report. For now you have the longs on the run.”
Ethanol is made mostly from corn in the U.S. One bushel of the grain makes at least 2.75 gallons of the fuel.
Corn has tumbled after farmers planted record acreage in an effort to rebound from 2012’s drought-ravaged crop.
Corn for December delivery dropped 3 cents, or 0.7 percent, to $4.2825 a bushel in Chicago. The contract expires tomorrow. The more actively traded March contract decreased 5 cents to $4.3425. One bushel makes at least 2.75 gallons of the renewable fuel.
The corn crush spread, or the difference between a gallon of ethanol and the corn needed to make it, was 5 cents based on the March contracts, down from 8 cents yesterday, data compiled by Bloomberg show.
Stockpiles have been at record lows for the time of year for most of 2013, data compiled by Bloomberg show. Rising production “portends the odds of that improving,” Kitt said.
In cash market trading, ethanol declined 70 cents a gallon to $2.75 in New York, 15 cents to $2.30 in Chicago, 15 cents to $2.40 on the Gulf Coast and 7.5 cents to $2.525 on the West Coast, data compiled by Bloomberg show.
West Coast ethanol’s premium to the Gulf narrowed 7.5 cents to 12.5 cents. Chicago’s discount to New York Harbor narrowed 55 cents to 45 cents.
The U.S. is required to use escalating amounts of ethanol in gasoline. Biofuel industry advocates and petroleum interests have battled over whether the country should abandon the 2007 energy law known as the Renewable Fuels Standard.
Senators Dianne Feinstein, a Democrat from California, and Tom Coburn, an Oklahoma Republican, introduced legislation today that would remove the corn-based ethanol requirement from the mandate. The Environmental Protection Agency has proposed reducing next year’s target to 13 billion gallons, or about 900,000 barrels a day, from the 14.4 billion scheduled under the law.
The EPA tracks compliance with the mandate with Renewable Identification Numbers, or certificates attached to each gallon of biofuel. They can also be traded among refiners.
Corn-based ethanol RINs rose 1 cent to 28 cents and advanced RINs, which cover biodiesel and Brazilian sugarcane- based ethanol added 1 cent to 29 cents, data compiled by Bloomberg show.
--Editors: Richard Stubbe, David Marino