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Lower-Than-Anticipated Ethanol Inventory Supported Corn Prices

Sean Brown

Favorable Demand Indications Supported Grain Prices

Corn prices advance

Corn futures prices on the Chicago Board of Trade (or CBOT) for March expiry rose by 0.21% and settled at $3.54 per bushel on March 2, 2016. Corn prices rose on stronger corn demand cues from the weak US inventory report from the US EIA (Energy Information Administration). Despite the advance in corn prices on CBOT, the Teucrium Corn Fund (CORN) fell by 0.1% on March 2, 2016.

The EIA released the Weekly Ethanol Plant Production Report on March 2. The ethanol production for the week ending on February 26 was 987,000 barrels per day, which fell by 7,000 barrels per day from the previous week. The US EIA’s Weekly US Ending Stocks of Ethanol Fuel report for the week ending February 26 was 22,624,000 barrels, which fell by 481,000 barrels from the previous week. The speculation of weaker supply supported the ethanol prices on March 2 despite the decline in ethanol prices by 0.7% to $1.38 per gallon. However, corn prices received support for the ethanol production in the near term, as it is a crucial ingredient in the process.

Grains SA, a major South African grains producer, projected that South African corn production could be lower than the consensus projection of 7.2 million metric tons for the market year 2015-16. According to the report, production could be lower by 5 million metric tons. Over the prior two marketing years, corn production in South Africa has fallen. A sharp reduction in corn projections for the third consecutive year could boost corn imports by 4 million to 5 million metric tons.

Stock discussion

The rise in corn prices supports the corn-producing and trading companies, as the value of their inventory would increase. Businesses such as Tyson Foods (TSN), Ingredion (INGR), and ConAgra Foods (CAG) rose by 0.3%, 2.1%, and 0.59%, respectively on March 2, 2016. On the other hand, the share value of CHS (CHSCP) fell slightly by 0.26% on the day. The PowerShares DB Agriculture Fund ETF (DBA) rose by 0.3% with the rise in corn prices.

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