CBOT weekly outlook: High U.S. corn prices cut into ethanol production

A corn crop west of Grunthal, Man. on Aug. 17, 2019. (Dave Bedard photo)

MarketsFarm — Upcoming reports from the U.S. Department of Agriculture are expected to steer Chicago Board of Trade (CBOT) futures, at a time when high corn prices in the U.S. may be cutting into ethanol production in that country.

According to the U.S. Energy Information Administration’s report released on March 3, 849,000 barrels of ethanol per day were produced during the week of Feb. 26, down from the weekly average of more than 900,000 barrels.

By comparison, only 658,000 barrels per day were produced during the previous week, when a cold snap disrupted operations in many areas.

“Over the last couple months, we’ve been running nine to 13 per cent under last year in ethanol and today’s report, even though it bounced back from last week, was still 21 per cent under last year,” Ryan Ettner, broker for Chicago-based Allendale Inc., said. “We could see lower ethanol on next week’s (USDA) report.”

Ettner blames high corn prices, reducing ethanol’s competitiveness on the market, for the fuel’s downturn.

Despite the strength, he said prices for corn, soybeans and wheat have had little movement or volatility since January. Ettner expects corn to stay between $5.72 and $5.80 per bushel, while soybeans should top out at $14.50/bu. (all figures US$). Domestic supplies are also expected to remain the same.

“From the USDA (report) next week, for corn and beans, we’re looking at a small carry-out decline and wheat to be basically neutral,” he said, adding that it may still be too early to determine how much winterkill wheat has suffered.

With a USDA report on crop acreage to be released later this month, Ettner predicts a rise in acreage for corn and soybeans, which may lower prices.

“I think we’ll have a quick (price) spike higher and then, a day or two after the report, cooling off. The next move might be a small grind lower going into the acreage report,” he said. “Falling to the low end of prices we’ve seen over the last two months, but nothing too violent.”

— Adam Peleshaty reports for MarketsFarm from Stonewall, Man.

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