Ethanol Slides After Report Shows Increase in Output

From Bloomberg

By Mario Parker

Ethanol plunged after an Energy Information Administration report showed output last week jumped the most in more than two years.

The biofuel dropped 3 percent after the Energy Department’s statistical unit arm said production last week rose 5.8 percent to 854,000 barrels a day, the most since June 29 and the biggest gain since December 2010. Output has increased three of the past four weeks as margins to make the fuel from corn have improved.

“It’s profitable today,” said Wallace Tyner, an agricultural economist at Purdue University in West Lafayette, Indiana. “It’s what you expect to happen exactly happening.”

Denatured ethanol for May delivery decreased 7.6 cents to $2.423 a gallon on the Chicago Board of Trade. Prices have gained 11 percent this year.

Ethanol’s discount to gasoline narrowed as gasoline futures for May delivery tumbled 7.73 cents, or 2.6 percent, to $2.8651 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations. The spread narrowed 0.13 cent to 44.21 cents a gallon.

Ethanol margins have been boosted by rising estimates of corn stockpiles. The Agriculture Department forecast today that inventories on Aug. 31 will be 757 million bushels, up from 632 million forecast in March.

Crush Spread

Prices for the grain surged to a record after drought last year shrank yields, eroding profits to make ethanol and forcing some companies to halt operations.

Corn for May delivery rose 4.75 cents to $6.49 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

The corn crush spread, representing gains or losses from turning corn into ethanol and based on May contracts, was 6 cents a gallon, down from 16 cents yesterday and up from minus 35 cents at the end of 2012. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

Stockpiles expanded 1.8 percent to 17.8 million barrels, the biggest weekly gain since Jan. 25 and the highest level since March 15. Ethanol-blended gasoline made up a record 96 percent of the total U.S. gasoline pool, data from the Energy Department’s analytical arm showed.

The U.S. didn’t make any foreign purchases of the biofuel from 49,000 barrels the previous week and unchanged from a year, the report showed.

Spot ethanol in Sao Paulo last week cost $2.28 a gallon, data compiled by Bloomberg show. Sugarcane is used to make the fuel in Brazil.

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