Ethanol Follows Corn Higher as Price Drop Lifts Consumption

Ethanol futures rebounded from the steepest decline in nine trading sessions as corn prices near a one-week low boosted demand.

The grain-based additive gained after corn reversed a 2.1 percent drop during the trading session to finish higher at $6.54 a bushel, raising production costs for ethanol distilleries. One bushel distills into about 2.75 gallons of the gasoline additive.

“Most guys saw it as an opportunity to be buyers and get back in the market,” said Chris Manns, an analyst and co- founder at Chicago Traders Group. “Hopefully, they’re hedged. Most of these guys have hedge programs in place.”

Denatured ethanol for February delivery gained 1 cent, or 0.4 percent, to $2.323 a gallon on the Chicago Board of Trade. Prices have gained 32 percent in the past year.

In cash market trading ethanol in Chicago slumped 4.5 cents, or 1.9 percent, to $2.285 a gallon and on the West Coast the additive lost 3.5 cents, or 1.4 percent, to $2.42, according to data compiled by Bloomberg.

Ethanol in the U.S. Gulf decreased 3 cents, or 1.2 percent, to $2.42 a gallon and in New York the biofuel fell 3 cents, or 1.2 percent, to $2.40.

Corn futures for March delivery soared 12.75 cents, or 2 percent, to close at $6.54 a bushel on the Chicago Board of Trade.

Prices also rose on speculation Chinese President Hu Jintao’s visit to Chicago will yield more business and export demand for the grain, Manns said.

An average ethanol mill in Iowa is losing 4 cents on every gallon produced while an Illinois plant is losing a penny a gallon on a spot basis, according to Ag Trader Talk, an online grains information service in Clive, Iowa.

(Source: http://www.bloomberg.com/news/2011-01-20/ethanol-follows-corn-higher-as-price-drop-lifts-consumption.html)