Friday, April 1, 2011

Corn Surges Again. Daily Limit Expanded to 45 Cents, Ethanol Prices Jump (ADM; PEIX)

 Corn is trading at $7.34750 up $.415 (6%), just under the new 45 cent daily limit.
Wheat and soybeans are following with lesser percentage moves
Ag economists speak of price as a rationing mechanism, directing grains to their highest value uses.
This model only represents reality in the absence of market distortions introduced for political reasons.
What all this highfalutin language means is you may have to give up the kids corn flakes so Archer Daniels Midland can continue to manufacture ethanol subsidized in at least four different ways:

The 45 cents-per-gallon blender tax credit
The EPA mandate that 10% (soon to be 15%) of liquid fuels be ethanol.
The tariffs on imported ethanol.
Row crop subsidies handed out to farmers by the bushel.

There's another subsidy or two that I'm missing but you get the point.
With ethanol sucking up 40% of the corn crop it's time to wean the pigs from the subsidy trough.
Here's Bloomberg:
Ethanol Jumps Most in Almost 6 Months After Corn Stockpiles Drop
Ethanol jumped the most in almost six months to cap its third quarterly gain after the U.S. government reported corn stockpiles fell to the lowest level in three years, signaling higher production costs for the fuel.
The grain-based gasoline additive climbed 7.3 percent on the Chicago Board of Trade after the Agriculture Department said corn inventories at the beginning of March slipped to 6.52 billion bushels, down 15 percent from a year earlier. Corn is the main ingredient in U.S.-made ethanol.

“The big picture here was the corn stocks,” said Dan Flynn, a trader at PFGBest in Chicago. “That’s extremely bullish. That’s really going to be driving the ethanol.”
Denatured ethanol for April delivery advanced 18 cents to $2.656 a gallon, the biggest one-day gain since Oct. 8 and the highest price since July 14, 2008. Prices increased 12 percent from January through March and have risen 72 percent in the past year....MORE