Ethanol Drops to Three-Year Low After Corn Output Estimate
Larger corn crop is expected to lower costs for distillers, could lead to re-opening ethanol plants.
Mario Parker
Ethanol plummeted to a three-year low, expanding its discount to gasoline, after a government report showed corn production will be higher than previously estimated, lowering costs for distillers.
The spread widened by 8.55 cents to 91.47 cents a gallon after the Agriculture Department said corn output will be 13.84 billion bushels this year, more than the 13.6 billion estimated in a survey of 34 analysts and trading firms by Bloomberg.
"The cheaper corn should turn on some of these plants," said Jim Damask, a manager at StarFuels Inc. in Jupiter, Florida. "There’s a little more pressure on it after the report."
Denatured ethanol for October delivery slid 3.5 cents, or 1.9 percent, to $1.848 a gallon on the Chicago Board of Trade, the lowest level since Aug. 24, 2010. Futures have dropped 16 percent this year.
Gasoline for October delivery rose 5.05 cents, or 1.9 percent, to $2.7627 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.
Corn for December delivery fell 6.25 cents, or 1.3 percent, to $4.6625 a bushel in Chicago. September corn slumped 0.75 cent to $4.79. One bushel makes at least 2.75 gallons of ethanol.
Record Planting
Farmers responded to last summer’s drought that destroyed crops by planting a record amount of acres of the grain. Higher corn costs had forced ethanol plants to shut or reduce output.
Ethanol production in the week ended Sept. 6 rose 3.5 percent to 848,000 barrels a day, data from the U.S. Energy Information Administration show. That’s down 12 percent from the record 963,000 barrels a day in December 2011.
Stockpiles last week climbed 0.3 percent to 16.3 million barrels, the most since Aug. 16. Ethanol blender inputs, a measure of demand, tumbled 3.1 percent to 834,000 barrels a day, an eight-week low. Imports dropped 59 percent to 15,000 barrels a day last week.
A 2007 energy law requires the U.S. to use escalating amounts of ethanol in gasoline. The government monitors adherence to the program by using tracking certificates attached to each gallon of biofuel called Renewable Identification Numbers, or RINs. The certificates can also be traded among companies.
Corn-based ethanol RINs slipped 1 cent to 63 cents, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, were unchanged at 71 cents.
