Bower Trading Market Strategy Report: Chinese Ethanol Will Boost Corn Prices
More bearish production news from the USDA last week, but some bullish news from China. China announced it has set a goal of blending 10% of its gasoline with ethanol by the year 2020. Doug Werling, with Bower Trading, says that is good news for the U.S. corn grower, “Currently, they can produce 700 million gallons annually. They will have 10 new ethanol plants come on line in the next year that will produce an additional billion gallons. Out of the 54 billion gallons of gasoline they consume each year by 2020, they will need to produce 5.4 billion gallons of ethanol.”
This this demand is going to take some time to show up in the market over the next few years. Werling says it will become a major factor, “This will account for about 50 MMT of corn. Currently the U.S. is projected to have a carryover of 200 MMT of corn. So you are talking about 25% of our carryover just to produce the increased ethanol demand from China.” He added this could increase demand for corn by 2.2 billion bushels of corn.
On the soybean side, we did see more purchases of soybeans by China last week, as the dollar remains weak. Also, early soybean yield numbers are running about10 bpa below average, and that adds more skepticism to the USDA yield estimates. “We had some 70 bpa reports from Indiana, 60 bpa from Illinois, and 70 bpa from Iowa. These are early soybeans so they should be the highest yields we see,” said Werling.
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