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How Stronger Weekly Ethanol Production Affected Corn Demand

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Corn prices fell

Corn futures on the Chicago Board of Trade (or CBOT) for March delivery fell by 0.48% and settled at $3.65 per bushel on February 18, 2016. Corn prices fell due to weaker corn demand prospects from the stronger-than-anticipated production and inventory data in the weekly US Energy Information Administration report. The Teucrium Corn Fund (CORN) followed CBOT and shrank by 0.56% on February 18, 2016.

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In its Weekly US Ethanol Plant Production report, the US Energy Information Administration (EIA) for the week ending on February 18, 2016, reported a rise of 6,000 barrels per day. For the week ending February 12, weekly plant production was 975,000 barrels per day. The weekly fuel ethanol inventory for the week ending February 12 was a record 23,218,000 barrels.

Lower oil prices are hurting ethanol prices, as ethanol is an alternative fuel. Stronger ethanol production and higher inventory weighed on corn prices, as corn is the key input for ethanol production.

The Buenos Aires Grains Exchange released its first corn production estimates for 2015-16 corn production on February 18, 2016. The projection of 25 million tons of corn production for the marketing year 2015-16 was lower than the 2014-15 corn production of 28.5 million tons. The weather conditions are supporting South American corn, so the weaker production projection was contrary to expectations.

Stock discussion

The fall in corn prices adversely affects the inventory value of corn trading and producing business. On February 18, despite the drop in corn prices, CHS (CHSCP), ConAgra Foods (CAG), Ingredion (INGR), and Archer-Daniels-Midland (ADM) rose by 0.26%, 0.14%, 1.1%, and 1.5%, respectively. However, the PowerShares DB Commodity Index Tracking Fund (DBC) fell by 0.55% with the drop in corn prices.

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