Could Corn Price Gain Support in Speculation of Supply?



Corn prices rise

Corn futures contracts for December trading on the CBOT (Chicago Board of Trade) rose by ~1.2% and settled at $3.8 per bushel on October 21, 2015. The prices rose due to more speculative technical and commercial buying. The Teucrium Corn ETF (CORN) followed CBOT and closed up with a 0.39% rise on October 21, 2015.

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Discussion on Ethanol and rain

The EIA’s (U.S. Energy Information Administration) weekly ethanol production report was released on October 21, 2015. The production of ethanol during the week ending on October 16, 2015, was at 951,000 barrels per day, or 2,000 barrels per day more than the previous week’s production, and 2,800 barrels per day over the previous five-week average. Rising ethanol production could indicate rising corn demand, as corn can be one of the inputs for ethanol production. Growing demand sentiment supported the rise in corn prices on October 21, 2015.

Anticipated harvest progress ahead of schedule might continue at almost the current rate, in spite of the precipitation expectations in the US Corn Belt. Speculators believe that expected rain would not disturb the harvest significantly as the chance of rain is not high during the current week ending on October 24, 2015. This suggests that the supply sentiment for corn would remain high.

The supply sense in the corn market is strong if we look at harvest activity. However, when the production becomes part of the supply is the producers’ decision. At the moment, prices have been trading lower than the US Department of Agriculture’s producer’s cost estimates of $4 per bushel. In this condition, the producer’s requirement of cash would govern the supply.

Agriculture businesses

The stocks of Ingredion (INGR), Archer Daniels Midland (ADM), and CHS (CHSCP) fell by 0.21%, 0.88%, and 0.30%, respectively, on October 21, 2015. However, Bunge’s (BG) stock rose slightly by 0.05% on the day. Meanwhile, the PowerShares DB Agriculture Fund (DBA) fell by 0.37% on October 21, 2015.


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