Ethanol rose to the highest price in more than seven months as drought in the Midwest threatened corn crops and raised production costs.
Prices gained as dry, hot weather in the U.S. threatened to harm crop development, making the grain more expensive. A bushel of the grain yields about 2.75 gallons of the renewable fuel. Distillers have responded by reducing output 11 percent in 2012.
“Ethanol production has started to slow down a little bit,” said John Janney, a vice president at Citigroup Global Markets Inc. in Chicago. “The reason for the rally in corn is just hot, dry weather.”
Denatured ethanol for August delivery surged 10 cents, or 4.2 percent, to $2.504 a gallon on the Chicago Board of Trade, the biggest gain since June 25 and the highest price since Dec. 1. Prices have increased 14 percent this year.