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Why the Higher Corn Crop Consensus Hurt Corn Prices

Sean Brown

Why Projections for Marketing Year 2016–2017 Drove Grain Prices

Corn prices fell

Corn futures on the CBOT (Chicago Board of Trade), for March expiry, fell by 0.62% and settled at $3.59 per bushel on February 24, 2016. Corn prices fell due to the strong supply sentiment. There was a higher projection for the corn crop in marketing year 2016–2017. The Teucrium Corn Fund (CORN) traded on the heels of the CBOT. It fell by 0.52% on February 24, 2016.

The U.S. Department of Agriculture’s Annual Outlook Forum for marketing year 2016–2017 provides supportive details for the near term. Analysts think that the corn crop could increase by 1.7 million tons for marketing year 2016–2017 from the year before. This is due to lower wheat yield expectations—given that the world has a strong wheat supply. The speculation of stronger-than-projected corn acreage boosting the supply hurt corn prices on February 24, 2016.

On February 24, the EIA (U.S. Energy Information Administration) released its Weekly Ethanol Plant Production report for the week ending on February 19, 2016. The ethanol production for the week increased by 19,000 bpd (barrels per day) to 994,000 bpd. The EIA’s Weekly US Ending Stocks of Fuel Ethanol fell from the record levels by 113,000 barrels to 23,105 barrels on February 19, 2016. Despite the rise in the ethanol production, the decline in the stocks suggests increased demand. Despite larger supplies, increasing consumption might support corn prices. It’s a key producing input for ethanol.

South Africa’s National Treasury announced that it would import 5.0 million tons of corn during marketing year 2015–2016. The drought-stricken region isn’t above sourcing white corn. It’s a staple food in the region. White corn isn’t grown throughout the world. The rise in South African corn imports could provide an opportunity for US corn exports.

Stock discussion

Falling corn prices are negative for fertilizer businesses. Lower farm receipts hurt fertilizer companies’ profitability. On February 24, 2016, with the decrease in corn prices, the shares of Syngenta (SYT) and Terra Nitrogen (TNH) fell by 0.78% and 0.84%. The prices of Potash Corporation (POT) and The Mosaic Company (MOS) rose by 3.9% and 2.4% on February 24, 2016. The PowerShares DB Agriculture Fund ETF (DBA) rose by 0.25% with the fall in corn prices on February 24, 2016.

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