Photographer: Daniel Acker/Bloomberg
Ethanol rose to the highest price since July 2006 as demand for the biofuel climbed while rail congestion held down production rates.
Futures surged 7.8 percent. Distillers are being forced to dial back output because of the availability of trains to transport corn to turn into the biofuel. The same delays are affecting the shipment of ethanol to the population-dense East Coast from the corn-rich Midwest, where about 89 percent of plants are located.
“It is logistics, logistics, logistics,” said Julie Ward, an assistant vice president at R.J. O’Brien & Associates, a broker in Des Moines, Iowa. “It all boils down to that. The further you have to carry it, the harder it is to get there.”
Denatured ethanol for April delivery gained 23.5 cents to $3.252 a gallon on the Chicago Board of Trade, the highest settlement since July 11, 2006. It was the biggest jump since Oct. 8, 2010. Futures have risen 33 percent in the past year. Volume was 15 percent above the 100-day average at 2:07 p.m.
A 2007 U.S. law requires the biofuel, mostly made from corn, to be blended into gasoline, so higher ethanol costs can boost retail prices for the motor fuel. Regular gasoline at U.S. pumps, averaged nationwide, reached $3.537 a gallon yesterday, the most since Sept. 12, according to Heathrow, Florida-based AAA, the nation’s largest motoring group.
Ethanol companies haven’t been able to increase production to meet higher consumption because they can’t get tank cars quickly enough, Ward said. Demand combined with severe winter weather have limited rail transport. The biofuel shortfall might last through April as plants go offline for routine maintenance before the U.S. summer driving season, she said.
Spot ethanol in New York Harbor climbed 12 cents to $4.10 a gallon, up 60 percent from a year ago, according to data compiled by Bloomberg.
Consumption Up
Refinery and blender inputs, a measure of consumption, advanced 1.4 percent last week to the highest level since Dec. 20, data from the Energy Information Administration show.
Flint Hills Resources LLC, which owns and operates oil refineries and ethanol plants in the U.S., plans to close its Iowa Falls, Iowa, mill from March 31 through April 11, its website shows. Plymouth Energy LLC will shut its Merrill, Iowa, distillery on April 1, April 2 and possibly April 3, according to its website.
Ethanol inventories last week were down 10 percent from a year earlier and are at a seasonal record low, data compiled by Bloomberg show.
The Rail Energy Transportation Advisory Committee, established by the U.S. Surface Transportation Board to address problems, said in a presentation this month that tank car availability for ethanol is “extremely tight due to reduced velocity.”
While petroleum products are shipped via pipeline, ethanol is delivered by rail, truck and barge.
Gasoline Spread
Ethanol, which has traded at a discount to gasoline for the past two years, switched to a premium this week. It widened to 31.45 cents today, the most expensive the additive has been in relation to the motor fuel since Feb. 25, 2009. The spread was 7.44 cents yesterday.
Gasoline for April delivery slipped 0.51 cent to $2.9375 a gallon on the New York Mercantile Exchange. The futures cover reformulated gasoline, made to be blended with ethanol before delivery to filling stations.
The biofuel also increased in spot regions. Ethanol in Chicago rose 40 cents to a record $3.80 a gallon, data compiled by Bloomberg show. On the Gulf Coast, the fuel advanced 38 cents to $3.985, also an all-time high. On the West Coast, the additive gained 3.5 cents to $3.95 a gallon,
To contact the reporter on this story: Mario Parker in Chicago at mparker22@bloomberg.net
To contact the editors responsible for this story: Dan Stets at dstets@bloomberg.net Margot Habiby, Bill Banker
