Nov. 14 (Bloomberg) -- Ethanol prices are breaking records in the U.S. as demand from Brazil to the Netherlands for corn- based biofuel sends exports to an all-time high.
Prices rose to $2.79 a gallon on Nov. 3, the highest ever for the month, according to data compiled by Bloomberg. Exports climbed to an average 62,750 barrels a day in the first eight months of the year from 26,000 in 2010, and reached an unprecedented 98,000 in July, according to the U.S. Energy Department.
Futures have climbed 11 percent this year on the Chicago Board of Trade because of shortfalls in Brazil and Europe as well as increased U.S. demand. Oil gained 6.7 percent and gasoline 3.1 percent on the New York Mercantile Exchange. Production has increased 3 percent from a year earlier, while output in Brazil, once the largest exporter, has dropped 17 percent as the harvest of sugarcane used to make the fuel fell.
"The world is looking for ethanol and right now the U.S. is going to be the first spot because we have product and it's lower cost than anybody else," Bob Dinneen, president of the Washington-based Renewable Fuels Association, said in a telephone interview on Oct. 28.
Prices increased 20 percent the past year as appetite for biofuels grew and an expiring tax credit boosted domestic demand.
Canada has imported the most U.S. ethanol this year, about 18,000 barrels a day, followed by Brazil, with 15,000, according to the Energy Department. The United Arab Emirates, the fourth biggest member of the Organization of Petroleum Exporting Countries, imported 10,000 barrels a day in July.
Brazilian Production
Mills in Brazil have increased sugar production at the expense of ethanol, giving the U.S. more market share, according to Alejandro Zamorano Cadavid, an industry analyst at Bloomberg New Energy Finance in New York.
Brazil harvested 459.6 million metric tons of sugarcane in the 2011-12 season, down from 501.2 million tons in 2010-11, through Nov. 1, Unica, an industry group, estimated in a Nov. 10 report. The government has reduced the amount of the biofuel that must be blended with gasoline to 20 percent from 25 percent.
The Brazilian real's 5 percent appreciation against the dollar also made exports less competitive. Ethanol in Brazil costs about $3.02 a gallon, 21 percent more than the $2.50 from a U.S. producer, including shipping costs, according to Bloomberg New Energy Finance.
Distillers in the U.S. have been shipping the fuel to South America via the Gulf of Mexico and "space on this route is seen becoming tight" over the next two months, Ratzeburg, Germany- based researcher F.O. Licht said in a report today.
European Costs
The U.S. is benefitting from higher costs and production shortfalls in Europe, where output is about 165 million gallons short of the 2.45 billion gallons drivers are mandated to use this year, according to Bloomberg New Energy Finance. Ethanol in New York Harbor is $2.96 a gallon compared with $3.21 in Rotterdam, data compiled by Bloomberg show.
Even with the lower U.S. prices, the industry remains profitable. On a spot basis, an average ethanol mill in Iowa is making 31 cents a gallon, while a plant in Illinois gets 37 cents, the most since Jan. 6, 2010, according to Ag TraderTalk, a Clive, Iowa-based online grains information service.
"Margins are outstanding," said Julie Ward, assistant vice president at R.J. O'Brien & Associates, a brokerage in Des Moines, Iowa. "Exports are certainly part of it."
Prices of corn, the primary ingredient in the U.S., have risen 1.1 percent this year to $6.36 a bushel in Chicago, as of today, trailing ethanol's gains.
Tax Credit
The 45-cent-a-gallon tax credit for blending the biofuel with gasoline helped profits. That's scheduled to expire at the end of December. Last year, industry groups received a one-year extension. This year, producers say it's not needed because the government requires ethanol be blended with gasoline, Dinneen of the Renewable Fuels Association said. Refiners must use 12.6 billion gallons of ethanol this year and 15 billion by 2015.
Production of conventional gasoline blended with ethanol, a proxy for blending beyond the government requirement, rose to 5.05 million gallons a day in the week ended Nov. 4, 2.1 percent higher than a year earlier, according to Energy Department data.
There are 209 ethanol distilleries in the U.S., and production of the fuel averaged 911,000 barrels a day, or 14 billion gallons on an annualized basis, in the week ended Nov. 4, the Energy Department said in a report on Nov. 9.
Output exceeds government consumption requirements and exports have helped soak up excess supply, said Cadavid.
Dinneen said he expects the industry to export as much as 800 million gallons of the biofuel this year, double last year's record.
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