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CHICAGO BOARD OF TRADE MARKET NEWS

Outlook:  Not everyone is satisfied with the way USDA, in its July WASDE, adjusted feed use/ethanol grind and then used the residual category as a balance.  USDA will have the addition of field survey intelligence when it makes its forecast in the August WASDE.  Farmers in good areas feel certain the average corn yield will rise from 163.5 bu./acre to 166 or 167 (13.5 bbu), but others, noting previous water damaged areas and the prospect for hot-dry conditions associated with forecasted high pressure ridging, are not so confident.  They raise the bullish specter of a more market shocking decline in yield.  After all, look how USDA shook the market last month with its stocks and planted area reports.  Meanwhile, U.S. corn exports (1.44 bbu) are now running 120 million bushels ahead of last year.

CBOT SEPTEMBER CORN FUTURES

Current Market Values:

U.S. WEATHER/CROP PROGRESS        

During the next five days (July 15-19), 2 inches of rain is forecast across the long-term drought area encompassing northeastern Minnesota, north-central Wisconsin, and western Upper Michigan. Somewhat less precipitation (1 to 1.5 inches) is expected in eastern Upper Michigan and northern Lower Michigan, as well as over southeastern New York including Long Island, Connecticut and New Jersey. The mid-Atlantic region should receive up to 0.5 inch of rain, while farther south 2 to 3 inches of rain is forecast for portions of the Southeast. Little relief is predicted across Texas and southeastern Oklahoma during the next five days, with rainfall amounts generally ranging between 0.10 and 0.25 inch. Up to an inch of rain is anticipated across the drought area in the lower Mississippi Valley. In the Southwest, 0.25 to 0.50 inch of rain associated with monsoonal showers and thunderstorms is expected over Arizona and New Mexico, with locally heavier amounts possible.

For the ensuing five days (July 20-24), the odds favor above-median rainfall across the Upper Great Lakes region, and below-median rainfall over southeastern New York, southern New England, New Jersey, the southern Plains. Follow this link to view current U.S. and international weather patterns and the future outlook:  Weather and Crop Bulletin.

U.S. EXPORT STATISTICS

Corn: Net sales of 678,100 MT for delivery in 2009/10 were up 35 percent from the previous week but down 19 percent from the prior four-week average.  Increases were reported for Japan (214,000 MT, including 81,800 MT switched from unknown destinations and decreases of 50,300 MT), Egypt (163,700 MT, including 60,000 MT switched from unknown destinations), China (125,200 MT), Mexico (68,800 MT), Syria (60,000 MT, including 57,000 MT switched from unknown destinations), Germany (60,000 MT), and Taiwan (57,200 MT).  Decreases were reported for unknown destinations (131,800 MT), Brazil (30,000 MT), South Korea (22,900 MT), and Guatemala (10,900 MT).  Net sales of 345,300 MT for delivery in 2010/11 were mainly for Japan (106,000 MT), unknown destinations (95,400 MT), Egypt (60,000 MT), and South Korea (55,000 MT).  Exports of 1,042,800 MT were up 1 percent from  the previous week and 8 percent from the prior four-week average. The primary destinations were Japan (208,500 MT), Egypt (172,200 MT), Mexico (134,600 MT), China (125,200 MT), Venezuela (72,700 MT), and Syria (60,000 MT).

Barley:  There were no sales reported during the week.  Exports of 700 MT were to Canada.  

Sorghum: Net sales of 15,800 MT reported for Morocco (26,400 MT, including 25,000 MT switched from unknown destinations), Chile (10,000 MT), and Japan (8,100 MT), were partially offset by decreases for unknown destinations (18,900 MT) and Mexico (9,800 MT).  Exports of 60,400 MT were to Mexico (33,900 MT) and Morocco (26,400 MT). 

FOB

Distillers Dried Grains with Solubles (DDGS)

 DDGS prices were steady this week, with a soft undertone for August delivery period. The spot market is holding strong, but there is a lack of demand looking into August. In the past few years, DDGS prices relative to corn have bottomed in August and started their way back up into the fall and winter.

Domestic Market:

There were several unit trains traded for September delivery that was viewed as supportive for the market out ahead. Demand from the various sectors was characterized as average by one broker.

Export Market:

On the export side, the market was pretty strong for bulk shipments out of the major ports. There was rumor that up to 200,000 mt of bulk was sold between last week and this week. The bids for barges CIF NOLA reflect a steady demand. Inversely the container market has been very slow; one source reported that it was about 30 percent of normal. The Asian demand for DDGS right now is down as some buyers and traders in Asia work through heavy inventories of DDGS. There was some talk that traders in China were dumping their long positions as it has become increasingly difficult to sell it in the forward delivery periods, and containers are arriving in port

COUNTRY NEWS  

Argentina:  Corn basis levels are rising along with the CBOT.  There may be some pressure downward as Paraguayan corn is being offered at four cents under and ready for shipping a month earlier than usual.

Brazil:  Solid volumes of corn are being traded with Europe the main buyer despite the typical problem of Brail meeting the technical standards for toxins, metals and GMP procedures.  Prices shifted higher over the week, rising from $175/MT FOB to 177-176. 

Bulgaria:  Feed wheat is usually thought of as wheat that doesn’t meet milling grade but due to excessive rain, fusarium and sprouting, even the quality of feed wheat is substandard.  Barley is also being lost to weather with smaller amounts harvested and low test weights.  The issue affects Romania as well.

China:  New crop weather conditions have improved, but in the near-term China is buying; two cargoes of old crop corn were reported sold to the Middle Kingdom.  The government says dependence on imports is not a viability and aims for 95 percent self-sufficiency through yield increases, but market analysts note that a nation’s food imports tend to grow as it becomes richer and so exporters should watch China’s macroeconomic growth more than it listens to government assertions.

Israel:  A tender purchase of Black Sea barley was made at $167/MT, which is about $20/MT more expensive than just two weeks ago—largely because there are not many offers of supply.

Russia:  The official grain forecast for this year’s drought-affected grain crop is 85 MMT, down 12 percent from 97 MMT last year.  However, fears that the drought could worsen have worked to strengthen market prices all the more; barley prices are up $5-20/MT, and corn prices were higher all around. 

Ukraine:  Corn and barley prices have stabilized despite the lack of export demand and slow domestic use. 

OCEAN FREIGHT MARKETS AND SPREADS

OCEAN FREIGHT COMMENTS               

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting:  As predicted last week,  the freight markets have experienced a temporary bottoming out, or at least a dead cat bounce. After 33 days of declining rates, the market decided that it may have been too much too fast. On Monday the Gulf-Atlantic values began stabilizing and put in a stronger performance for the balance of the week. Panamax rates in the Pacific did not halt their free fall until Thursday and still do not look as well supported as the Atlantic.

Physical rates are up more than the index would indicate as vessel owners are getting stubborn and optimistic that the market will continue to recover and better profitability may be coming down the road. This indeed may be more optimism than anything else as the overall dynamics of the market remain the same. But at least the fall off the cliff has found a ledge and we will have to see how well it will hold. The Gulf-PNW freight spread to Asia is now close to $25.00/MT.

As for the U.S. Gulf of Mexico oil leak; B.P. believes it has successfully placed a temporary cap on the leaking pipe and is still working to establish two relief wells and eventually to cement over the leaky pipe. The problems are not yet fully fixed, but it looks as though excellent progress has been made. At least for now the oil leak has been halted. Commercial vessel traffic continues to move into and out of the Mississippi River without serious disruption. Cleaning stations have been set up in the event that the cleaning of vessel hulls is needed. Cleaning is done with high pressure hoses. Vessels moving through the oil slick have not required cleaning, but vessels at anchor in the oil have.

As a general freight market reference and indicator; below is a recent history of freight values for Cape size vessel shipments of Iron-Ore from Western Australia to China:

Four weeks ago:           $8.50-$8.90
Three weeks ago:         $8.45-$8.75
One week ago:              $7.70-8.20
This week                       $5.85-6.20 (Down 2.00/MT from last Friday)

In dollar terms, the current spot and 30-day U.S. Gulf to Japan Panamax market is currently near $56.00/mt.  The 30-45 day Panamax rates from the PNW to Japan are approximately $31.00/mt. The PNW/Gulf freight spread to Asia is approximately $25.00/tonne (.63/bushel for corn and .68/bushel for wheat and soybeans).

INTEREST RATES