US ethanol production drops for 3rd straight week

* Production dips 4,000 bpd

* Stocks climb to 20.52 million barrels

* Third weekly decline in production

KANSAS CITY, - U.S. ethanol production fell again in the latest week, the government said on Wednesday, as high corn prices raised producer costs and high gasoline prices cut into demand for fuel.

Ethanol output totaled 898,000 barrels per day (bpd) for the week ending April 8, down 4,000 bpd from the prior week, the Energy Information Administration said Wednesday.

It was the third straight weekly decline in production but output remains well higher than it was a year ago.

Ethanol stocks climbed 455,000 to 20.52 million barrels, EIA said in its weekly petroleum report.

Ethanol prices have been rising as corn prices climb, and prices of distillers grains, a byproduct of ethanol production, also have risen. But profit margins remain under pressure, which could be contributing to slowed production.

"Corn prices are definitely a problem, but so far, DDG (distillers grains) values have been rising as have ethanol prices, and mostly offsetting the rise in corn," said Tom Waterman, ethanol expert and published of The Ethanol Monitor.

"Margins remain healthy for the time being," said Waterman.

Margins actually improved slightly last week, though just above break even levels, according to Archer Financials analyst Mark Soderberg.

At least one ethanol producer was blaming high corn prices for its financial woes. Clean Burn Fuels, which operated a 60 million gallon plant in North Carolina, ceased production and filed for Chapter 11 bankruptcy this month, saying ethanol price gains were not keeping pace with surging corn costs.

Corn futures on the Chicago Board of Trade have been on a rapid climb due to tight global supplies and strong domestic and export demand for food, livestock feed and fuel.

On Wednesday, corn futures were trading above $7.64 a bushel on the Chicago Board of Trade, up nearly 90 percent from a year ago.

American Coalition of Ethanol Vice President Ron Lamberty said another factor in reduced production was slower demand for gasoline, most of which is blended with ethanol, due to high fuel prices.

"As the price gets higher, fuel purchases drop in general since ethanol is part of every gallon," said Lamberty. "There is less fuel out there being sold of all kinds."

Ethanol makers used an estimated 94.29 million bushels of corn over the last week, below the average of 99.616 million bushels projected use for ethanol expected by the U.S. Department of Agriculture.

source: reuters