Ethanol start-ups

U.S. ethanol plants that have been shut for as many as five years are now coming back online as a record U.S. harvest has pushed down corn prices and improved profit margins for makers of the biofuel.

Agribusiness giant Cargill Inc on Nov. 4 said it restarted a plant in Fort Dodge, that the company purchased in 2011 from corn processor Tate & Lyle.

The announcement came as Noble Group Ltd said it will soon restart an Indiana ethanol plant that was shut for a year while another facility that was idled for five years in Ohio came back online last month.

U.S. farmers are gathering a corn crop expected to reach a record 14 billion bushels. The big harvest is replenishing stockpiles diminished by 2012’s blistering drought and pressuring benchmark Chicago Board of Trade corn futures to the lowest levels in three years.

Ethanol margins are the highest since late 2009 – the last year of a record corn harvest – as ethanol makers turn profits buying corn and then selling the biofuel as well as byproducts such as distillers dried grains and corn oil.

Minneapolis-based Cargill, a top U.S. ethanol producer, according to the Renewable Fuels Association, will eventually produce 115 million gallons yearly at the Fort Dodge plant.

“When full production capacity is reached, the plant will consume 150,000 bushels of corn a day and turn out five products, including dextrose, ethanol and SweetBran feed for cattle,” Al Viaene, manager of Cargill’s Fort Dodge plant, said in a statement.

Cargill, with annual sales of $136.7 billion in the fiscal year that ended May 31, also produces ethanol at plants in Eddyville, and in Blair, Neb.

Noble Group was revamping a plant in South Bend, Ind., with an annual capacity of 100 million gallons that should restart early in 2014.

Liquidators purchased the facility at auction in January for $2.5 million and then sold it in July to Noble Americas, a subsidiary of the Hong Kong-based Noble Group.

“They want to get going as fast as possible. They are planning for the first quarter, certainly by the end of March,” said Chris Fielding, the director of business development for the city of South Bend.

Lawsuit

CME Group Inc. Chief Executive Phupinder Gill denied that the exchange-operator changed its settlement rules to give electronic grain traders an advantage over veterans of the Chicago trading floor, who have sued the company, saying its new rules are killing their business.

Gill testified as the trial opened last week in a lawsuit filed by traders who work in the open-outcry pits on the Chicago Board of Trade’s 140-year-old agricultural trading floor. They sued CME in June 2012 to halt new end-of-day settlement rules that factored in transactions executed electronically, where most of the volume takes place.

Prior to the change, CME had a century-old tradition of settling futures prices for crops like corn and soybeans based on transactions executed in the pits.

CME, the largest U.S. futures market operator, owns the CBOT.

The settlement methods were changed “to reflect where the activity took place,” in electronic markets, Gill said in response to a question by the plaintiffs’ attorney on the first day of a trial over the rules in Chicago.

The U.S. Commodity Futures Trading Commission, which oversees CME and the CBOT, expressed concerns about the practice of basing end-of-day settlement prices solely on open-outcry activity, he told Cook County Circuit Court Judge Jean Prendergast Rooney.

“Market integrity was going to be at risk” if the rules were not changed, Gill said in reply to a question by the defense. He noted that the pit-based settlement procedures were not in violation of CFTC rules. Open-outcry traders sued to reverse the revised rules and have argued CME should not have implemented the new methods without a vote of approval by a majority of certain holders of CBOT memberships.

The lawsuit represents the last stand for traders on the floor, who traditionally did much of their business at the close of trading and say the new procedures are making the pits irrelevant. Some believe CME wants to shut down the floor in favor of electronic trading because the pits are expensive to keep open.

CORN ANALYSIS

Corn closed the week $.00 1/2 lower. Last week, private exporters reported a sale of 126,000 metric tons of corn to an unknown destination and 140,000 mt to South Korea.

Weekly export sales of corn showed a total of 67.7 million bushels, well above the 9.5 mb needed each week to reach the USDA forecast of 1.225 billion bushels.

The USDA announced corn harvest has advanced to 73 percent completed, slightly ahead of the average pace of 71 percent.

In the USDA supply/demand report, the USDA reported planted acres were down by 2.1 million to 95.3 million acres and harvested acres were cut by 1.9 million to 87.2 million.

Yield is the second highest on record, up 5.1 bushels per acre to 160.4 bpa with production only 146 mb larger to 13.989 bb.

This is still a major burdensome figure that will limit gains of corn through the winter. Ending stocks for 2013/14 were 32 mb higher at 1.887 bb, 1.063 bb higher than last year. World ending stocks were 164.33 million metric tons, much higher than the 154.21 mmt forecast.

Strategy and outlook: Producers are 50 percent sold of 2013/14 crop and own the December 560 strike puts on 50 percent of production. Exit these options and sell cash as an offset to move to 100 percent sold of 2013/14.

Producers are 10 percent sold of the 2014/15 crop.

SOYBEANS ANALYSIS

Soybeans closed the week $.44 1/2 higher from last week. Last week, private exporters reported a sale of 250,000 mt of soybeans to China.

Weekly export sales of soybeans showed a total of 38.1 mb, well above the 8.3 mb that is needed each week to reach the USDA forecast of 1.370 bb.

The USDA reported soybean harvest has reached 86 percent complete, slightly ahead of the average of 85 percent.

In the November supply/demand report, the USDA reported 2013/14 planted and harvested acreage both lowered 700,000 acres to 76.5 and 75.7 million, respectively.

Yield was raised to 43 bpa while production was estimated at 3.258 bb, a small gain of 109 mb, which is the third largest crop in history.

Ending stocks for 2013/14 were up 20 mb at 170 mb with stocks to use at 5.2 percent.

Global soybean ending stocks were 70.23 mmt versus estimates for 72.28 mmt. The report wasn’t bearish enough to drive prices sharply lower, so there should be a window of opportunity for producers to make sales during a post harvest rally before South American production becomes available in February and March.

Strategy and outlook: Producers are 80 percent sold of the 2013/14 crop. Sell 10 percent at $13.53 and 10 percent at $13.78.

Producers are 10 percent sold of 2014/15 production.

This material has been prepared by a sales or trading employee or agent of Midwest Market Solutions and is, or is in the nature of, a solicitation. This material is not a research report prepared by Midwest Market Solution’s Research Department. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Midwest Market Solutions believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such.

Brian Hoops can be reached at (605) 660-1155.