Ethanol Plunges Most in Two Weeks as Cheaper Corn Reduces Costs

Dec 31, 2013 4:25 pm ET

Dec. 31 (Bloomberg) -- Ethanol futures plunged the most in two weeks as cheaper prices for corn, the worst-performing commodity this year, made it more profitable for distillers to increase output.

The biofuel sank 1.6 percent as corn declined, capping the biggest annual drop since at least 1960, because of a record harvest. The grain is the primary feedstock for ethanol produced in the U.S., with one bushel making at least 2.75 gallons of the fuel alternative.

“With the price of corn going lower, that certainly helps” the ethanol producer, said Matt Janney, a broker at Futures International LLC in Chicago.

Denatured ethanol for January delivery fell 3.1 cents to settle at $1.911 a gallon on the Chicago Board of Trade. Prices dropped 13 percent this year, a third straight annual decline and the biggest since 2008. The quarterly drop, of 2 percent, was the second in a row.

Gasoline for January delivery slipped 0.19 cent to $2.7858 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 gasoline widened 2.91 cents to 87.48 cents a gallon.

Corn Prices

Corn futures for March delivery declined 1.5 cents, or 0.4 percent, to $4.22 a bushel in Chicago. The grain dropped 40 percent this year, the most among 24 commodities in the Standard & Poor’s GSCI Spot Index.

The corn crush spread, or the difference between the cost of corn and the price of ethanol, was 21 cents, down from 23 cents yesterday, data compiled by Bloomberg show.

Ethanol output has increased 20 percent to 926,000 barrels a day in the week ended Dec. 20 from a record low in January, data from the U.S. Energy Information Administration show.

Stockpiles last week were 15.7 million barrels, the highest level since Sept. 13, according to the EIA, the Energy Department’s statistical arm.

The latest production and supply data are scheduled to be released at 11 a.m. Jan. 3 in Washington.

In cash market trading, ethanol on the West Coast dropped 10.5 cents to $2.40 a gallon, data compiled by Bloomberg show. Prices climbed 0.5 cent to $2.28 on the Gulf Coast, 1 cent to $2.18 in Chicago and 1.5 cents to $2.34 in New York.

The West Coast’s premium to the Gulf narrowed 11 cents to 12 cents, while Chicago’s discount to New York Harbor expanded 0.5 cent to 16 cents.

The U.S. government tracks compliance with federal ethanol consumption mandates with Renewable Identification Numbers, certificates attached to each gallon of biofuel. Corn-based ethanol RINs rose 2 cents to 32 cents, data compiled by Bloomberg show.

--Editors: Charlotte Porter, Richard Stubbe