Ethanol Rebounds From Six-Week Low on Higher Corn Costs

Ethanol futures rebounded from a six-week low in Chicago as corn jumped, signaling higher production costs for makers of the fuel.The grain-based additive increased, following corn higher as end-users took advantage of a 10 percent drop in prices for the grain this month through yesterday.

Prices also rose amid concern that dry weather in South America will threaten crops. Ethanol is made from corn in the U.S.

“We were just kind of prime for some type of bounce,” said Mike Blackford, a consultant at FCStone Group in Des Moines, Iowa. “Both corn and ethanol were oversold. I don’t know when we’ll lose that correlation but it’s there.”

Denatured ethanol for December delivery rose 2.3 cents, or 1.1 percent, to settle at $2.109 a gallon on the Chicago Board of Trade, rebounding from the lowest price since Oct. 7. Futures have gained 8.2 percent this year.

In cash market trading ethanol on the West Coast slumped 10.5 cents, or 4.4 percent, to $2.285 a gallon and in the U.S. Gulf the additive lost 7.5 cents, or 3.2 percent, to $2.275, according to data compiled by Bloomberg.

Ethanol in Chicago decreased 6.5 cents, or 2.9 percent, to $2.15 a gallon and in New York the biofuel declined 5.5 cents, or 2.4 percent, to $2.235.

Corn futures for March delivery advanced 13.75 cents, or 2.6 percent, to close at $5.43 a bushel on the CBOT. One bushel of the grain distills into about 2.75 gallons of the ethanol.

The grain has dropped 12 percent since reaching a 26-month high of $6.175 on Nov. 9 after the U.S. Agriculture Department said adverse weather had reduced the size of the domestic crop, the world’s largest.

source: bloomberg