Ethanol Plunges for Fourth Day as Stockpiles Exceed 17 Million

Jan 23, 2014 4:14 pm ET

Jan. 23 (Bloomberg) -- Ethanol plunged for a fourth day in Chicago after the U.S. government reported that inventories of the biofuel climbed to a six-month high.

Futures dropped after the Energy Information Administration said stockpiles jumped 5.8 percent to 17 million barrels in the week ended Jan. 17. It was the biggest weekly gain since November 2012 and the highest level since July 19. Production increased 4.3 percent to 905,000 barrels.

“We’re over 17 million barrels now and seeing some initial selling,” said Matt Janney, a trader at Futures International LLC in Chicago.

Denatured ethanol for February delivery decreased 4.7 cents, or 2.5 percent, to settle at $1.805 a gallon on the Chicago Board of Trade, the lowest price since Dec. 16. Futures have fallen 23 percent in the past year.

Gasoline for February delivery slid 1.53 cents, or 0.6 percent, to $2.6618 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 gasoline expanded 3.17 cents to 85.68 cents a gallon.

Janney said ethanol may rebound over the next several weeks as frigid weather in the Midwest slows shipments. About 89 percent of U.S. ethanol plants are in the Midwest, according to data from the Energy Department’s statistical arm.

“It’ll be interesting to see if we get some buying in here in the next day or so because of the weather,” he said.

Crush Spread

Corn for March delivery added 2.75 cents to $4.29 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol. The corn crush spread, or the price difference between a bushel of corn and a gallon of ethanol, was 20 cents, down from 24 cents yesterday.

The positive crush spreads have allowed ethanol producers to boost output and capture a profit after navigating losses this time a year ago.

In cash market trading, ethanol declined 15.5 cents to $2.185 a gallon in New York, 11.5 cents to $1.84 in Chicago, 4 cents to $2.025 on the Gulf Coast and 2.5 cents to $2.215 on the West Coast, data compiled by Bloomberg show.

Chicago’s discount to New York tightened 4 cents to 34.5 cents, while the West Coast’s premium to the Gulf swelled 1.5 cents to 19 cents.

The U.S. tracks compliance with ethanol consumption mandates with Renewable Identification Numbers, certificates attached to each gallon of biofuel that are submitted to the government and also traded among refiners.

Corn-based ethanol RINs for 2014 rose 1.5 cents to 32.5 cents and RINs for 2013 increased 1 cent to 33 cents, data compiled by Bloomberg show.

--Editors: Richard Stubbe, Margot Habiby