U.S. ethanol prices hit 3-year high

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Fri, Jun 10 2011

By Janet McGurty

NEW YORK (Reuters) – U.S. ethanol prices hit their highest level in about three years on Thursday after cold, rainy weather and flooding cut corn plantings, but the hike in the additive’s costs was not expected to boost gasoline prices.

Cash ethanol rose 7 cents in the Midwest to $2.75 a gallon, a level not seen since 2008.

Even the thinly traded CBOT ethanol futures contract rose nearly 3 percent to $2.761 a gallon, a three-year high for the spot month, on corn’s rally to a record high.

The rising price of the mandated gasoline additive is not expected to impact on prices during the summer driving season.

“Ethanol is only a small part of the gasoline price. Crude is the main driver,” said Bill Day, a spokesman for Valero Energy Corp, the nation’s largest independent refiner and the first to enter into the arena of ethanol production with the purchase of 10 plants.

Corn is the main renewable used to make ethanol in the United States, which is blended into gasoline to meet Environmental Protection Agency clean air standards for gasoline.

In parts of the United States with poor air quality, the government requires at least 10 percent of the fuel be renewable.

CORN FUTURES HIT RECORD HIGH ON USDA DATA

The U.S. corn harvest was expected to be 2 percent lower than previously forecast, resulting in the tightest corn supply in 15 years, the U.S. Department of Agriculture reported on Thursday.

Corn futures touched a record high of $7.93 a bushel, marking the third straight session of gains, traders said.

“Ethanol prices are dirt cheap. The plants are not making any money with corn at these levels,” said one trader.

Because of the mandate to blend renewables with gasoline, ethanol makers will get some relief from the minimum renewal volumes mandated by the Renewable Fuel Standard which passed into law in 2005.

“Rising corn and ethanol prices will certainly impact producers at the margin,” said Tancred Lidderdale, a forecaster with the U.S. Energy Information Administration.

From the bullish corn report, the market anticipates higher ethanol prices, that could translate into less blending and more need for RINS, which are credits for blending ethanol that can be traded, sold or banked by refiners.

The price of RINS — Renewable Identification Number – which is given to every barrel of renewable fuel made has risen over the past few days, a common occurrence when ethanol margins dip.

Traders said that 2011 RINS was bid at $4.30 and offered at $4.40 a gallon on Thursday. Earlier in the week, RINS were trading at $3.50 a gallon.

U.S. production of ethanol increased last week to 915,000 barrels per day, according to EIA data, but inventories fell to 19.6 million barrels.

(Graphic on U.S. weekly ethanol production:r.reuters.com/kuk99r )

(Reporting by Janet McGurty, Additional reporting by Sam Nelson in Chicago; Editing by Marguerita Choy and Carole Vaporean)

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