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Could a Decrease in Ethanol Production Push Corn Prices Down?

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Nov. 24 2015, Published 11:39 a.m. ET

Corn prices decrease

December futures contracts for corn traded on the Chicago Board of Trade (or CBOT) fell slightly by 0.27% to settle at $3.63 per bushel on November 20, 2015. The corn futures prices fell due to technical and speculative selling. The Teucrium Corn Fund ETF (CORN) followed CBOT and rose slightly by 0.11% on November 20, 2015.

The producers’ decision to store corn has evidently been unfavorable, as prices have been declining ever since. There was no rally as per anticipations after the beginning of the harvest. Weather in the United States was unfavorable last week, as it disturbed the harvest activities. However, analysts project that the harvest activities might complete soon. These cues supported technical selling on November 20, 2015, and corn prices fell by 0.27% on the day.

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According to futures prices, carrying charges have continued to fall since October 2015. Further, the July 2016 expiry of corn futures prices of $3.81 per bushel suggests a bearish trend for carrying charges. That is why the market needed producers to store the corn. The situation has not yet improved.

Ethanol inventories have risen by 11% against the previous year for the week ending November 13, 2015, which indicates that production is falling. As most distillers store for approximately three months at the most, they might have reached the upper limit of their storage capacity. This suggests that the decline in ethanol buying could continue for a longer period, as producers won’t buy corn unless corn prices hit fresh lows.

Stock discussion

The prices of Tyson Foods (TSN), Archer Daniels Midland (ADM), and Bung (BG) fell by 1.8%, 1.7%, and 0.92%, respectively, on November 20, 2015. On the other hand, CHS (CHSCP) rose slightly by 0.06%. The PowerShares DB Agriculture Funds ETF (DBA) also rose by 0.44% on November 20, 2015.

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