Ethanol weakened against gasoline on concern that the highest returns on making the biofuel from corn since 2011 will help raise production rates.
The discount, or price difference, widened 3.18 cents to 18.18 cents a gallon at 10:45 a.m. New York time as the corn crush spread, or the difference between the cost of a gallon of ethanol and the corn needed to make it, rose to 19 cents, the highest since Dec. 2, 2011, data compiled by Bloomberg show. Production has struggled to rebound since drought last summer eroded profits.
“These things take time to cycle through,” said Mike Blackford, a consultant at INTL FCStone in Des Moines, Iowa. “Eventually you will see production come up to satisfy the market.”
Denatured ethanol for June delivery decreased 1.1 cents, or 0.4 percent, to $2.66 a gallon on the Chicago Board of Trade. Futures have gained 27 percent in the past year.
Gasoline for June delivery advanced 2.08 cents, or 0.7 percent, to $2.8418 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.
Ethanol is made from corn in the U.S., with one bushel distilling into at least 2.75 gallons of the renewable fuel.
About 34 percent of this year’s corn crop will be used to make ethanol, the Agriculture Department said in a May 10 report.
Blackford said farmers will ease their grip on supply as they plant more corn during the spring and as the harvest approaches, making it easier for ethanol companies to increase production.
“If the farmer gets the crop in the ground, he’ll be a more willing seller,” Blackford said.
Corn for July delivery dropped 6 cents, or 0.9 percent, to $6.495 a bushel in Chicago.
Ethanol production in the week ended May 3 averaged 843,000 barrels a day, down 12 percent from the record 963,000 barrels a day in December 2011, Energy Information Administration data show.