More railcars are being used to transport oil, which is cutting the number of trains that can be loaded with other products, including ethanol.
At midday, ethanol for April delivery was up 1.71 cents, or 6%, at $3.020 a gallon, the highest price since July 2011, on the Chicago Board of Trade.
Futures are up 58% this year, and drivers could see slightly higher gasoline prices as well, said Jerrod Kitt, director of market information at Linn Group, a Chicago-based brokerage. Ethanol makes up only 10% of the gasoline mix, so any rise at the pump would be small, he said.
A bitterly cold winter and rising crude oil shipments have caused railroad traffic to back up in the Midwest, where most U.S. ethanol is made using corn grown in the region. The snarl is preventing the biofuel from reaching the coastal refineries that mix ethanol with gasoline or exporters.
"Rail is over capacity right now and that's causing huge delays," said Chase Malcolm, ethanol broker at Starfuels Inc. in Jupiter, Fla. More railcars are being used to transport oil, which is cutting the number of trains that can be loaded with other products, including ethanol, he said.
Trains that normally return to ethanol plants in weeks are now taking months, creating a backlog of the biofuel that needs to be shipped, Mr. Malcolm said.
Mr. Kitt said he thinks the railroad problems will be resolved within 60 days and prices will ease. "Eventually, once you get these rail transport issues solved, you'll increase ethanol production by about 10% above current levels," Mr. Kitt said. "You'll have more than enough supply to meet demand."