Ethanol Rises to Four-Week High as Senate Passes Tax Credits

Ethanol futures rose to a four-week high in Chicago after the U.S. Senate passed an $858 billion tax-cut plan that includes incentives to help buoy demand for the biofuel.
The grain-based additive gained a seventh day out of the past eight after the Senate voted 81-19 on the tax measures, which extend a 45-cent credit to refiners for each gallon of the fuel blended with gasoline and a 54-cent tariff on Brazilian imports.

“There was a little bit of a rally into the close,” said Matt Janney, a trader at Citigroup Global Markets Inc. in Chicago. “Looks like the Senate voted to pass the ethanol subsidy. It still has to go through the House, but it’s kind of moving quicker than we had thought.”

Denatured ethanol for January delivery rose 1.5 cents, or 0.7 percent, to settle at $2.176 a gallon on the Chicago Board of Trade, the highest price since Nov. 15. It was the contract’s the sixth consecutive gain and the longest such streak since Nov. 3. Futures are up 12 percent this year.

In cash market trading, ethanol in Chicago gained 7 cents, or 3.3 percent, to $2.195 a gallon and on the West Coast the additive increased 5 cents, or 2.2 percent, to $2.28, according to data compiled by Bloomberg.

Ethanol in New York climbed 3 cents, or 1.3 percent, to $2.28 a gallon and in the U.S. Gulf the biofuel slumped 4 cents, or 1.8 percent, to $2.225.

The government incentives were set to expire at the end of this month. Biodiesel production ground to a near-halt after its $1-a-gallon tax incentive expired last year. The bill that passed the Senate today will reinstate and extend that credit for one year as well.

The House vote on the tax package could come tomorrow.

An average ethanol mill in Iowa is losing 8 cents on every gallon produced while an Illinois plant is losing 3 cents a gallon on a spot basis, according to Ag Trader Talk, an online grains information service in Clive, Iowa.

source: bloomberg