Researchers from University of Illinois conducted a study and found that grass that grows all year round will yield more ethanol output and lesser greenhouse gases emissions. The least productive farmlands in many parts of the United States are planted with corn used for ethanol production. Grasses like miscanthus, a hybrid grass used in Western Europe and switchgrass, which is native in the United States.
The latest report of the United States’ Department of Agriculture showed that the largest volume of corn produced this year is going to be used for ethanol production. According to the World Agricultural Supply and Demand Estimates of the U.S.D.A, 5.05 billion bushels of corn from the 2010/2011 crop year will be used for ethanol and byproducts while 5 billion bushes will be used as animal feed to help produce food for people.
Rising demand for corn from ethanol producers is pushing U.S. reserves to the lowest point in 15 years, a trend that could lead to higher grain and food prices this year.
The Agriculture Department on Friday left its estimate for corn reserves unchanged from the previous month. The reserves are projected to fall to 675 million bushels in late August, when the harvest begins, or roughly 5 percent of all corn consumed in the United States. That would be the lowest surplus level since 1996.
Here’s an interesting story, which speaks volumes about the psychological dynamic of the markets. On Friday the United States Department of Agriculture (USDA) will report on end-of-season inventories, often called ‘ending stocks.’ Traders are getting word the report may show inventories are lower-than-usual. Against that backdrop, as a trader you certainly don’t want to take a short position. So what to do? You buy, of course.
Monday’s buying drove corn prices to a record high of .6025 per bushel, up 24.25 cents, as reported in the Wall Street Journal. Country Hedging, a brokerage firm, said: “Federal forecasters could drop the projection to less than 500 million bushels from last month’s 675 million. This is a 15 year low.”
Corn prices are up 92% in the past year. The key driver of the surge in prices is demand from China. According to the U.S. Grains Council, China expects to import 9 million metric tons of corn this year. This is double its previous record of 4.3 million metric tons in 1995.
March corn futures jumped 16 cents to close at .785 per bushel, as reported by Bloomberg/Businessweek. This is the highest level since July 17, 2008.
Deere (DE) shares trended higher as corn has rallied to a 30-month high. Overall option implied volatility of 29 is below its 26-week average of 33, according to Track Data, suggesting decreasing price movement.
ARM Holdings (ARMH) closed down 4.8% after rallying sharply over the past seven weeks. January call option implied volatility is at 75, February is at 67, above its 26-week average of 46, according to Track Data, suggesting larger price movement.
Options Update is by Stock Specialist Paul Foster of theflyonthewall.com.
The US Department of Agriculture (USDA) cut its estimates of last fall’s corn and soybean crops.The soybean harvest was revised sharply downward to 3.33 billion bushels from 3.38 billion. Corn inventories are already at a 15 year low, were cut by more than 10% to 745 million bushels, as reported in the Wall Street Journal.
Let’s look at what happened around the world to the grain harvests:
What is the connection between feeder cattle and corn? Feeder cattle are placed on feed lots to fatten up before slaughter. Their weight gain is between 800 to 1,200 pounds each. The biggest expense for feedlot owners is grain. Corn is used as the main feed grain. Therefore if corn prices drop, feedlot owners pay less for feed and consequently will reap higher profits.
What kicked off the drop in corn prices was a report by the U.S. Department of Agriculture (USDA) that inventories before harvest were the highest in four years, as reported in Businessweek. That news hit the corn market hard. December corn futures traded at .95 per bushel, down 9.4 cents.
Corn Products (CPO) closed at .54. Corn prices rallied to a record high for the year on Friday as traders questioned whether crop yields will fall short of expectations. CPO overall option implied volatility of 32 is below its 26-week average of 37, according to Track Data, suggesting decreasing price movement.
Chevron Corporation (CVX) closed down 95 cents to .05. Crude oil futures are recently down 1.25% to .67 according to Bloomberg. CVX September put option implied volatility is at 27, December is at 25. That is near its 26-week average of 26, according to Track Data, suggesting non-directional price movement.
Update is by Stock Specialist Paul Foster of theflyonthewall.com
Rumors move markets, especially the commodity markets. The story of the day is a rumor that corn yields will be lower than forecast.The United States Department of Agriculture (USDA) originally forecast corn yields to be 165 bushels per acre. However, with the weather being hotter and drier east of the Mississippi, yields could come in lower, as reported by the Associated Press.
That sparked a rally in corn futures with the December contract up 17 cents to .64 per bushel (each one cent equals ). Wheat prices are benefiting from the drought in Russia and Russia’s export ban. December wheat futures shot up 27.5 cents to .41 per bushel. Soybeans also were higher by 26 cents to .35 per bushel for the November contract.