Rising South American Corn Supply Dragged Prices Down



Corn prices fell

December futures contracts for corn traded on the Chicago Board of Trade (or CBOT) fell by 1.1% and settled at $3.73 per bushel on December 11, 2015. Corn futures prices fell because of speculation of rising supply from South America. The Teucrium Corn Fund (CORN) followed CBOT and dropped by 0.90% on December 11, 2015.

Brazil’s National Commodity Company (or CONAB) increased corn production projection for the country by 0.13 million tons from last month to 82.0 million tons for the marketing year 2015-16 on December 11, 2015. Full season corn is estimated at 33.5%, or 27.5 million tons, and Safrinha corn is projected at 54.6 million tons. The projection increase was for full season corn, and Safrinha was unchanged. With the production projection higher than USDA’s December World Agriculture Supply and Demand Estimation Report (or WASDE), Brazilian corn will be a tough competitor for US corn in the near term. The speculation of excess supply from Brazil dragged corn prices down on December 11, 2015.

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The US Department of Agriculture increased its long-term projections for corn on December 11, 2015. The corn planting area increased by 2.1 million acres year-over-year and 500,000 acres from the previous estimate to 90.5 million acres for the marketing year 2016-17. The rise in sowing would indicate excess supply sentiment that is induced by higher export competition. The rise of mandatory ethanol blend in gasoline by the US EPA (Environment Protection Agency) for 2016 also supported the increase in planting. The anticipated rise in corn production and the increase in sowing weighed on corn prices on December 11, 2015.

Stock discussion

The decline in corn prices reduces the value of the inventories of corn traders and producers. It negatively affects share prices of such businesses. Archer-Daniels-Midland (ADM), ConAgra Foods (CAG), Bunge (BG), and Tyson Foods (TSN) fell by 2.5%, 2.5%, 0.88%, and 1.7%, respectively, on December 11, 2015. The PowerShares DB Agriculture Fund ETF (DBA) dropped by 0.68% on December 11, 2015.


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