Ethanol Advances as Winter Weather Affects Shipments by Rail

Jan 06, 2014 4:43 pm ET

Jan. 6 (Bloomberg) -- Ethanol gained as wintry weather across the U.S. Midwest delayed rail shipments.

Futures rose 3.7 percent as Norfolk Southern Corp. and BNSF Railway Co. said their operations were affected by heavy snow and wind chills below minus 50 degrees Fahrenheit (minus 46 Celsius) spread over parts of the region. Ethanol is delivered mostly by rail, while other fuels are transported largely by pipelines.

“There’s definitely some buying,” said Jim Damask, a manager at StarFuels Inc. in Jupiter, Florida. “Rail should go, but there’s a chance” for delays.

Denatured ethanol for February delivery increased 6.9 cents to $1.924 a gallon on the Chicago Board of Trade. The January contract, which expires today, added 1.5 cents to $2.005 a gallon.

Gasoline for February delivery fell 0.28 cent to $2.646 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, based on February contracts, narrowed 7.18 cents to 72.2 cents a gallon.

Norfolk Southern said in a statement on its website that weather may cause “delays of 24 to 48 hours, particularly on shipments moving across the Midwest and Northeast.” BNSF, a unit of Warren Buffett’s Berkshire Hathaway Inc., also said the cold weather has affected operations.

Crush Spread

Corn for March delivery rose 4.25 cents, or 1 percent, to $4.2775 a bushel in Chicago. One bushel makes at least 2.75 gallons of the fuel. The corn crush spread, or the difference between the cost of corn and the price of ethanol, was 29 cents, up from 25 cents on Jan. 3, data compiled by Bloomberg show.

In cash market trading, ethanol rose 6 cents to $2.41 in New York, 3 cents to $2.21 in Chicago, 4 cents to $2.32 on the Gulf Coast and 4 cents to $2.60 on the West Coast, data compiled by Bloomberg show. Chicago’s discount to New York Harbor deepened 3 cents to 20 cents, while the West Coast’s premium to the Gulf was unchanged at 28 cents.

The Environmental Protection Agency tracks compliance with government ethanol consumption requirements with Renewable Identification Numbers, or RINs, that are attached to each gallon of biofuel and that can also be traded among refiners.

Corn-based ethanol RINs were at 30 cents, down 2 cents from a week earlier, data compiled by Bloomberg show.

Ethanol production has fallen three consecutive weeks through Dec. 27 to 913,000 barrels a day, data from the Energy Information Administration show.

Stockpiles were at 15.6 million barrels that week, up from an all-time low of 15 million on Oct. 25, according to data from the Energy Department’s statistical arm.

--With assistance from Naureen S. Malik in New York. Editors: Richard Stubbe, Bill Banker