The U.S. Congress held a series of votes last week indicating that ethanol may be rapidly losing favor among lawmakers. Most importantly, the Senate passed a measure to remove the 45-cent per gallon tax credit as well as a 54-cent tariff on imported ethanol, a measure that could save the federal government nearly $6 billion annually. The tariff and tax credit have helped to support the U.S. ethanol industry, but have also come under fire from budget deficit hawks and the livestock industry.
In the early 2000s, corn was typically worth around $2.00 per bushel and was primarily used as a livestock feed. Currently, 40% of the U.S. corn crop goes toward producing ethanol, which has contributed to the significant rally in corn prices over the last five years. Corn prices rose to nearly $8 per bushel last week, a price that livestock feeders have described as crippling.
Some analysts warn that a reduction in ethanol subsidies could decrease demand for U.S. corn, potentially pulling prices down significantly. As of Friday morning, corn was trading at $7.10 per bushel, down nearly a dollar from its all-time high made last week.
Greek Woes Weigh on Markets
Turmoil erupted in Athens again this week as Greek citizens took to the streets in opposition to recent government actions to impose austerity measures and reduce spending. Despite being bailed out last year, Greece continues to struggle with large debt levels and is seeking foreign aid again.
Concerns surrounding Greece as well as other nations like Spain, Ireland and Portugal pushed the European currency to new lows for the month on Thursday. Despite the recent 6 precent decline in the value of the Eurocurrency, the Euro is still significantly more valuable than the U.S. Dollar, with one Euro worth nearly $1.43 on Friday.
Uncertainty also spread into equity and energy markets, with the NASDAQ hitting 6-month lows, while crude oil dropped to $92 per barrel, the lowest level since February.
As stocks, crude oil and foreign currencies lost value this week, gold gained ground, pushing back toward $1,545 on Friday morning. Gold is still shy of its all-time high made last month at $1,577.
Opinions are solely the writer's. Alex Breitinger is commodities broker with Breitinger & Sons LLC, a commodity futures brokerage firm in Valparaiso, IN. He can be reached at (800) 411-3888 or indianafutures.com. This is not a solicitation of any order to buy or sell any market.