Higher-Than-Projected Ethanol Inventories Kept Corn Prices Down


Dec. 17 2015, Published 1:34 p.m. ET

Corn prices fell

March corn futures contracts traded on the Chicago Board of Trade (or CBOT) fell by 2.0% and settled at $3.69 per bushel on December 16, 2015. Corn futures prices fell due to the higher-than-projected ethanol inventory report by the US EIA. The Teucrium Corn Fund (CORN) followed CBOT and dropped by 1.5% on December 16, 2015.

The US EIA (Energy Information Administration) released its weekly ethanol production and inventory report on December 16, 2015, for the week ending on December 11, 2015. The production in the reported week rose 7,000 barrels per day compared to the previous week to 1 million barrels per day. It was near the historical high production published in November 2015 of 1.0 million barrels per day. The rise in ethanol production supports corn demand and futures prices. The ethanol inventories were reported at 20.3 million barrels, their six-month high on December 16, 2015. The higher-than-projected rate of ethanol inventories significantly hurt the demand sentiment in the near term on December 16, 2015.

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A new US tax provision in the approval process during the week ending December 18, 2015, could increase corn supply. The provision proposes to allow depreciation of machinery purchased in 2015. Analysts project that approval of this change could provide a tax benefit to the farmers who have bought new machinery in 2015.

Weakness in the Argentinian peso, record inventory, and the tax benefits could result in increasing inventory in the US market, and thus weigh on US corn.

Stock discussion

The fall in corn prices would adversely affect farmers and traders engaged in producing and trading corn. With the fall in corn prices, Tyson Foods (TSN) fell to 0.17% on December 16, 2015. However, ConAgra Foods (CAG), Bunge (BG), and CHS (CHSCP) rose by 0.94%, 2.9%, and 0.46% on December 16, 2015. ETFs such as the PowerShares DB Agriculture Fund ETF (DBA) fell by 0.79% on December 16, 2015.


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