U.S. ethanol production rises 10 pct in May - EIA

NEW YORK, July 29 (Reuters) - U.S. ethanol production in May jumped 10 percent from April as the growing fleet of distilleries boosted output, a government report said.

U.S. ethanol output rose 1,675,000 barrels to 18,543,000 barrels in May, the latest month for which data was available, the Energy Information Administration said on Monday.

"Ethanol is cheaper than gasoline and new distillers keep opening so it makes sense that production is going to rise," said Mark Mayo, an ethanol expert at the U.S. Energy Information Administration.

U.S. ethanol capacity has risen about 46 percent since July 2007 to more than 9.4 billion barrels per year as the government gave the industry generous incentives in an effort to reduce dependence on foreign oil. [ID:nN17510842]

U.S. output of the alternative motor fuel for the month of June may fall, however, as the U.S. Midwest was hit with the worst flooding in 15 years. The floods pushed up corn prices to record levels, pressuring profit margins for distillers to the point where average ones were losing money for every gallon of ethanol they produced.

Margins improved over the last two weeks to profits of about 25 cents per gallon as corn prices fell.

Meanwhile, spare U.S. ethanol supplies in May rose about 505,000 barrels to 12,044,000 barrels, the EIA said. (Reporting by Timothy Gardner, editing by Marguerita Choy)