Ethanol Declines on Speculation Production Rates to Increase

Jan 13, 2014 4:33 pm ET

Jan. 13 (Bloomberg) -- Ethanol declined on speculation that higher output will lift inventories of the gasoline additive.

Futures fell 0.7 percent after the U.S. Agriculture Department raised its forecast for corn used to make ethanol to 5 billion bushels for this year from 4.95 billion. One bushel makes at least 2.75 gallons. Production of the grain-based biofuel has averaged more than 900,000 barrels a day since Oct. 18, data from the Energy Information Administration show.

“There’s a lot for the market to digest from the report and no one wants to reach too far,” said Will Babler, a broker at Atten Babler Risk Management LLC in Galena, Illinois. “Production has been good. Everyone’s watching to see what that does with stocks.”

Denatured ethanol for February delivery slid 1.3 cents to settle at $1.95 a gallon on the Chicago Board of Trade. Futures have fallen 15 percent in the past year.

Gasoline for February delivery dropped 3.5 cents, or 1.3 percent, to $2.6341 a gallon on the New York Mercantile Exchange. The futures cover reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Ethanol’s discount to the motor fuel narrowed 2.2 cents to 68.41 cents a gallon.

Corn Futures

Corn for March delivery added 1.75 cents to $4.345 a bushel in Chicago. The corn crush spread, or the difference between the cost of the grain and the price of ethanol, was 29 cents, down from 30 cents Jan. 10, data compiled by Bloomberg show.

Ethanol output will average 913,000 barrels a day this year, the Energy Information Administration said Jan. 7 in its Short-Term Energy Outlook.

In cash market trading, ethanol fell 8 cents to $2.61 a gallon on the West Coast, 5.5 cents to $2.295 on the Gulf Coast, 2.5 cents to $2.175 in Chicago and 0.5 cent to $2.375 a gallon in New York, data compiled by Bloomberg show.

The West Coast’s premium to the Gulf narrowed 2.5 cents to 31.5 cents, while Chicago’s discount to New York deepened 2 cents to 20 cents.

The U.S. keeps compliance with ethanol consumption mandates with Renewable Identification Numbers, tracking certificates attached to each gallon of biofuel and that can be traded among refiners.

Corn-based ethanol RINs for both 2014 and last year were unchanged at 29 cents, data compiled by Bloomberg show.

--Editors: Charlotte Porter, Richard Stubbe