Corn Prices are Riding on a 5-Year High

 Corn is an ingredient of ethanol. Europe is expected to increase its demand for the biofuel
in 2021.
 China is set to rebuild its corn stock due to high pig population.
 Continued weakening of the US dollar has increased Chinese commodity purchases.
Description

What factors have contributed to the surging corn prices? We look at the sustainability of the
trendline.

Corn prices traded at $4.9625 per bushel as of January 8, 2021, a 5-year high. It last hit a 10-year
record on July 2012 where it closed at $8.24 per bushel. The recent increase was attributed to
accelerated demand of ethanol from Europe, the falling Dollar and high demand from China to
rebuild depleted corn stocks.

Macrotrends
EU Ethanol demand Factor

The demand for road fuel is expected to increase especially in the second half of 2021 due to
successful rollout of the Covid19 vaccine. Low fuel demand is projected to decrease ethanol
demand in the first quarter of 2021 due to the winter season that reduces transportation. We
expect that the Renewable Energy Directive (RED II) in Europe that is to come in place in June
2021 will increase ethanol demand. Under the RED II, a mandated 14% of renewable fuel is
required in the transport vessels.

The blending mandates for biofuels will force Europe to consider other ethanol sources outside
the EU. Production margins were squeezed for European producers of ethanol at the close of
2020 due to high corn prices. France, one of the main ethanol exporters in Europe was hit by rain
deficits and a yellowing virus that affected crop yield in Q4 2020. For the better part of the year,
Europe will have its ethanol supplied by the US- the world’s largest producer. Corn forms a huge
ingredient of the commodity and we expect corn prices to increase.

Overall, the global demand for ethanol is projected to increase by 13.2% (YoY) in 2021 to stand
at 1.89 million barrels per day. However, the outlook shows that the total ethanol demand may
not recover to pre-pandemic heights until 2022.
Chinese Corm Demand

China is expected to rebuild its depleted corn stocks and purchase more than 22 million-30
million metric tons of corn in 2021. Neighbors such as South Korea have already paid a mean of
$243.42 mt for H1 2021 corn cargoes. This purchase represents an increase of $32.5 per mt or
15% for corn imports (YoY).

The recovery of the hog and pig population in China from the swine flu means that the country’s
feed demand will continue to grow in 2021. By the end of the year, the feed stocks will be
restored due to the high Chinese appetite for pigs. As at Q4 2020, hog population stood at 378
million heads (an increase of 27% from Q1 2020) while sows increased by 32%.
Stronger Chinese Yuan against the Dollar

Trading View

The Chinese Yuan has surged 5.94% to stand at its sturdiest level past the US Dollar in close to 3
years. This means that less Chinese currency is needed to exchange into dollars in order to buy
American commodities. The increase in corn prices may not deter Chinese consumers from
buying the commodity as the Yuan is gaining strength against the dollar.

Investment Vehicle

US Corn futures can be traded by buying shares of the Teucrium Corn Fund Exchange Traded
Fund (ETF). As at January 8, 2020 the shares were trading at year high prices of $15.93.
Investing.com

The 14-day relative strength index (RSI) of the ETF stands at 61.148. Many investors have
noticed this ETF and are on a buying spree. The stochastic oscillator is also at 74.548 indicating
strong buying opportunity for traders. The 50-day simple moving average (SMA) is at 15.66
(+0.27 high). There is a strong buying opportunity when technical analysis of the ETF is
considered.