Market Perspectives November 15, 2013

Outlook:Speculators had recently established a record short position and prices sold off into last Friday’s November WASDE, but USDA data did not give sufficient justification for bearish traders to drive corn futures lower. Corn futures rebounded 20 cents after the report, but then bearish traders refocused their attentions on the prospect of EPA adjusting down the mandates of future ethanol consumption. Reminiscent of the decline in corn futures prices that occurred before the release of the highly anticipated November WASDE, corn futures spent most of this week working lower in anticipation of an adjustment to biofuel policy. However, the contents of the impending announcement were already expected by the majority of market participants.

The general expectation by the market was that the Environmental Protection Agency (EPA) could moderately reduce the mandate for corn-based ethanol because total fuel consumption has not been as great as expected. However, any substantial adjustment to the Renewable Fuel Standard (RFS) mandate was expected to primarily be directed toward cellulosic ethanol production. Nevertheless, bearish traders anxiously awaited the probable announcement from EPA and paid little attention to large export sales figures or a relatively stout basis. Short traders desired a reason to shove the December 2013 corn contact back down to the recent low of $4.15 per bushel that occurred immediately prior to the release of the November WASDE. After all, their time to remain in the nearby contract is limited and they need it to test the recent lows sooner rather than later. EPA made a public statement prior to the close today and the corn market did not fall apart. (A summary of EPA’s statement can be read in the ethanol section.) In relation to the outlook of feed grain prices, this seems to have been another opportunity for savvy corn traders to, “sell the rumor, buy the fact”.