Expected rise in ethanol demand to boost corn price
- Corn price has been trading sideways after hitting a high of close to eight years in February.
- With economies reopening, the expected surge in ethanol demand will boost corn prices.
- Investors await EIA's data on gasoline inventories on Wednesday.
Corn price has been trading sideways after hitting its highest mark of close to eight years in early February. On Tuesday’s session, the futures were down by 0.06% at $545.06. The expected rise in demand for ethanol is likely to boost prices in the near term.
Expected surge in ethanol demand
Corn price is expected to get a boost from the rising demand in ethanol. 40% of the US corn is used in the production of ethanol as a gasoline additive. The lockdown measures enacted in different regions triggered a decline in the consumption of the energy product. The dire situation led to output cuts and plant closure by firms like Archer Daniels Midland Co. and Valero Energy Corp.
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Notably, ethanol production in the US is yet to reach its pre-pandemic levels. According to the Energy Information Administration, the weekly domestic output was 922,000 bpd for the week ending 19th March. In comparison, the number stood at over 1 million bpd during the same period in 2019.
However, ethanol demand seems to be on course to recovery; an aspect that will boost corn price. This comes as economies continue to recover from the pandemic. Besides, the vaccination program in the US has recorded significant progress. In his first press conference, President Biden pledged the administering of 200 million jabs within his initial 100 days in office. Investors looking to invest in commodities are keen on the EIA’s data on Wednesday, to assess the change in demand for gasoline.
Corn Price Technical Outlook
On a daily chart, corn price is trading along the 20-day exponential moving average and above the mid-term 50-day EMA. Notably, it is within a rectangle pattern whose formation began in mid-February. This is after it hit its highest price in close to 8 years. The lower and upper levels of the rectangle are 529.58 and 558.95. It is likely to continue trading within that range in today’s session.
However, based on the fundamentals, the bulls are likely to push corn price past the resistance level of around 560 as it targets 580. Above that point, the price is likely to hit a record high at 600. On the flip side, a breakout past 530 on the downside will have the bears target the lower level of 492.