Ethanol Little Changed Amid Ample Demand on Discount to Gasoline

Ethanol futures were little changed in Chicago as the fuel’s discount to gasoline buoyed demand.

The grain-based additive rose 0.2 percent on speculation that the discount to gasoline, which exceeded 80 cents last week, will spur refiners to blend more of the biofuel to pocket the difference between the two and to take advantage of the 45- cent tax credit provided for each gallon mixed in.

“From a demand standpoint, ethanol has very good support,” said Jason Ward, an analyst at Northstar Commodity Investments Inc. in Minneapolis. “It shouldn’t see less demand at that spread.”

Denatured ethanol for May delivery rose 0.6 cent to $2.62 a gallon on the Chicago Board of Trade. Prices are 64 percent higher than a year ago.

In cash market trading ethanol in the U.S. Gulf slumped 2 cents, or 0.7 percent, to $2.755 a gallon and in New York the additive decreased 2 cents, or 0.7 percent, to $2.73, according to data compiled by Bloomberg.

Ethanol in Chicago fell 2.5 cents, or 1 percent, to $2.62 a gallon and on the West Coast the biofuel slipped 0.5 cent to $2.755.

The additive’s discount to gasoline narrowed 2.45 cents to 70.94 cents today. The discount reached 86.68 cents on April 28, the widest since July 22, 2008.

Gasoline for June delivery dropped 1.85 cents, or 0.6 percent, to settle at $3.3294 a gallon on the New York Mercantile Exchange. The contract includes reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Production of conventional gasoline blended with ethanol averaged 4.83 million barrels a day in the week ended April 22, 3.9 percent higher than a year earlier, according to Energy Department data.

Average ethanol mills in Iowa are losing 2 cents on every gallon produced, while plants in Illinois are losing 3 cents spot basis, according to Ag Trader Talk, an online grains information service in Clive, Iowa.

source: bloomberg