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CHICAGO BOARD OF TRADE MARKET NEWS

Outlook:  The U.S. corn crop is mostly silked and is now pollinating. A Reuters survey of crop analysts affirms USDA’s estimate of 163.5 bushels per acre.  Based on technical signals and seasonal trends, liquidation of the long positions established by funds is likely for the next few weeks.  Offsetting this clearly bearish trend could be a perceived trend toward stronger oil prices and a weakening dollar.  Additionally, the sharp rally in wheat has doubled the wheat/corn spread, which should discourage wheat feeding.  Corn exports now exceed USDA’s forecast, though actual shipments are lagging.  The surge in Black Sea feed wheat prices now makes U.S. corn the cheapest feed grain in the world.

CBOT SEPTEMBER CORN FUTURES

Current Market Values:

U.S. WEATHER/CROP PROGRESS        

During the next afive days (July 22-26), a band of heavy rain (2-3 inches) is expected not far south of the drought areas in the Great Lakes region, though the eastern extent of this band may reach into New York state and southern New England, helping to offset any dryness there. Generally light amounts of rain (0.50 inch or less) may fall across the mid-Atlantic states and Southeast, with more significant amounts possible for the Space Coast of Florida. In the Southwest, an expected surge in monsoonal showers and thunderstorms will be welcome, with rainfall totals across much of New Mexico, eastern and central Arizona, predicted to be between 0.50 inch and 2.0 inches. Little if any relief is anticipated for southeastern Oklahoma and adjacent portions of northeastern Texas.

For the ensuing five days (July 27-31), the odds favor above-median rainfall over much of the Southeast, the Southwest, Rockies, northern Plains, and Upper Mississippi Valley. Follow this link to view current U.S. and international weather patterns and the future outlook:  Weather and Crop Bulletin.

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U.S. EXPORT STATISTICS

Corn: Net sales of 614,100 MT for delivery in 2009/10 were down 9 percent from the previous week and 17 percent from the prior four-week average.  Increases were reported for Japan (256,100 MT, including 71,900 MT switched from unknown destinations and decreases of 6,500 MT), unknown destinations (75,100 MT), China (58,700 MT), Venezuela (56,000 MT), Mexico (54,300 MT), Egypt (44,300 MT), and Colombia (32,600 MT).  Decreases were reported for Tunisia (24,000 MT), the Dominican Republic (13,000 MT), and Guatemala (9,100 MT).  Net sales of 540,900 MT for delivery in 2010/11 were mainly for unknown destinations (304,800 MT), Japan (67,100 MT), and Cuba (50,000 MT).  Exports of 948,400 MT were down 9 percent from the previous week and 1 percent from the prior four-week average.  The primary destinations were Japan (280,200 MT), China (185,700 MT), Mexico (152,800 MT), Colombia (77,200 MT), Taiwan (54,300 MT), and Syria (49,700 MT).

Barley:  There were no sales reported during the week.    

Sorghum: Net sales of 25,900 MT were reported for Japan (10,200 MT), unknown destinations (10,200 MT), and Mexico (5,500 MT).  Net sales of 1,100 MT for delivery in 2010/11 resulted as increases for Japan (8,100 MT) were partially offset by decreases for Mexico (7,000 MT).  Exports of 21,700 MT were to Mexico. 

FOB

DISTILLERS DRIED GRAINS with SOLUBLES (DDGS)

 The DDGS Values were slightly lower as of Thursday night when prices are taken from suppliers. However, we hear that a surge of export business took place late Friday that may have pulled up prices over the weekend. There have been several buyer missions visiting USA this week including Korea and China and that may have had some impact on prices. Most of of the discussion this week has been around DDGS color and the new commercial export terms using a Hunter L scale of minimum 50, for a contract term. Also vomitoxin accepted at a discount up to 7.0 and now the 36.0 protein and fat combined will be accepted to 34.0 minimum at 2:1 with analysis bonification. On the supply side of the market the ethanol industry is facing a situation of overcapacity created by the regulatory actions of the U.S. Government. The expected move of the EPA (Environmental Protection Agency) to allow an increase in ethanol blended into gasoline to 12% or 15%  did not happen during July as expected. There was also no action by Congress to create new regulations or incentives for ethanol production that would benefit the economics of ethanol sales or production. This is a serious blow to the growth in ethanol production and will impact DDGS prices in weeks and months to come until it is resolved. Demand for DDGS in the export market remains strong and values relative to corn are also attractive. We expect that the short term glut of inventories in several parts of Asia will have been consumed and buying will resume with a vengeance. There are several bullish factors building in the market right now. The Russian wheat production and exports are expected to be lower, the demand for soybeans and meal remains strong with a strong basis for soybeans out of Argentina, slowing production in the USA, and growing demand in China for DDGS and corn. All in all it is becoming increasingly hard to make a bearish case for the future prices, the only thing that might cause a sudden drop would be some sort of economic recession (double dip), that is still possible but as of today we do not have any major economic indicators leaning in that direction

COUNTRY NEWS  

Argentina:  Some ports were closed due to stormy weather, worsening the port disadvantage to Brazilian corn.  Still, there was short position covering on paper due to CBOT prices.  The flat price traded around $175/MT for corn.

Brazil:  The freight advantage over Argentina enables pricing about $4.00/MT higher with flat prices this past week at $182/1984/MT. 

China:  Previously dry areas have been receiving moisture, which will prompt better corn crop estimates.

India:  Beer consumption is up 7 percent and production is expanding, which is encouraging barley purchasing.  Because of prohibitive duties on malt, barley is purchased and malt manufactured in country.  Meanwhile, the khariff corn crop is vulnerable due to a weaker monsoon.

Russia:  The market reacted sharply to worse drought news in Russia.  Some question whether the intervention stocks are as large as claimed.  The situation is dynamic because of uncertainty over information, with some suggesting that claims of large crop losses due to drought are over-wrought, others saying yields are in line with expectations, whatever those are.  The drought is in the central region, whereas most exported grain comes from the south, and the country is still going to export a lot of grain.  The problem now is defaulted contracts in the Black Sea region as sellers decide they want to capture the extra $50/MT that the market has jumped over the past 45 days.

Southeast Europe:  The corn crop in Bulgaria and Romania is growing under perfect conditions and there will most certainly be surpluses.  Corn is priced at €10/MT above feed wheat, which is the normal spread. 

Ukraine:  Harvest delays, foreign demand and wheat drought news sent barley prices higher at Ukrainian ports.  Feed wheat prices rose $4.00/MT, barley was up $10/MT and while corn was stable ($175-180/MT FOB Black Sea ports), prices are expected to strengthen in the days ahead. 

OCEAN FREIGHT MARKETS AND SPREADS

OCEAN FREIGHT COMMENTS               

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting:  The talk in world freight markets is that the markets have bottomed out and are now recovering from the free fall experienced from last half June through the first half of July. While this is, at least temporarily, true, it is yet to be determined how much of a recovery the market will tolerate.

The world economic recovery is still sputtering along, Chinese Iron Ore imports for June were down 14.6 percent from May, and the world vessel fleet continues to grow. All in all, it looks like the market fundamental are basically unchanged and that another down turn in rates is entirely possible. Freight brokers feel the indexes have over reacted on the up side and that the physical markets are not following in lock step. But for vessel owners, hope springs eternal.

Below you will notice a big change in the U.S. Gulf to Egypt rates. I confess that this market caught me off guard and I did not drop the rates fast enough over the last few weeks to keep up with the free fall. The last GASC tender surprised me, and others, with the seemingly cheap rates that were offered.

As for the U.S. Gulf of Mexico oil leak; the temporary cap on the leaking pipe is still holding and B.P. is working to establish two relief wells and eventually to cement over the leaky pipe. The problems are not yet fully fixed, but 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

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:           $8.45-$8.75
Three weeks ago:         $7.70-$8.20
One week ago:              $5.85-6.20
This week                       $6.50-6.75 (Up $.60/MT from last Friday)

In dollar terms, the current spot and 30 day U.S. Gulf to Japan Panamax market is currently near $57.50/mt.  The 30-45 day Panamax rates from the PNW to Japan are approximately $32.00/mt. The PNW/Gulf freight spread to Asia is approximately $25.50/tonne (.65/bushel for corn and .69/bushel for wheat and soybeans).

INTEREST RATES