Corn Prices And The Slowdown In Ethanol Export

Mar.14.12 | About: Teucrium Corn (CORN)

This may come as a shocker to consumers, especially when gasoline prices are nearing $4 in most part parts of the country, but the fact is that the United States is a net exporter of fuel for the first time in about 20 years. It has been so for just over a year.

Much of the fuel being exported from the United States is ethanol, much to the delight of corn farmers and traders. In fact, ethanol exports hit a record level in November 2011 with 121,000 barrels a day being exported. These ethanol exporting refineries are the U.S. corn farmers' biggest customer, buying 40% of the domestic corn crop. So any farmer or corn trader in the commodities trading pits of Chicago worth their salt had better keep their eye on the state of the ethanol export market.

Importantly to the this market, we are beginning to see some evidence that there is a slowdown underway in the export of ethanol. Archer Daniels Midland (NYSE: ADM), one of the top two U.S. ethanol refiners, has said that exports declined in December. The chief operating officer of ADM, Juan Luciano, told analysts last month that he expects net exports of ethanol to total 500 million gallons this year. This works out to be about 32,000 barrels of ethanol a day-- which is far short of the record level set last November.

The independent oil refiner, Valero Energy (NYSE: VLO), forecasts ethanol exports of between 100,000 to 120,000 barrels a day, roughly the same as the November level. However, its chief development officer Gene Edwards admitted to analysts that the ethanol market is going through a "soft period right now". This so-called soft patch should be of great concern to corn farmers who have stored last year's corn as they await higher prices for corn in the future. It should concern investors holding long positions in any agricultural-based ETFs such as the Teucrium Corn Fund (NYSE: CORN), which is trading just two points away from its 52-week low of 37.77 a share.

For traders, it is interesting to note the growing link between the price of Brent crude oil and the price of corn futures. The growing bond between the corn market and the oil market was pointed out recently by Soren Schroeder, the chief executive for the North American subsidiary of agricultural trading firm Bunge (NYSE: BG). He said that based on their relative caloric values, when crude oil is at $100 a barrel, corn should be between $5 and $5.50 per bushel. With Brent crude trading at about $120 a barrel, it seems corn is trading at roughly the 'right' price at $6.50 a bushel. Mr. Schroeder went on to say that "the two are forever linked." That may not be so, but it is definitely noteworthy for both corn and oil traders right now.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.