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CHICAGO BOARD OF TRADE MARKET NEWS

Outlook: Last Friday’s WASDE report was considered moderately bearish, yet grain traders seemed reluctant to push the market lower. Prices attempted to bounce early this week, failed and then drifted lower. Much of the price action seems to be tied to end of year position settling. Prices could drift lower going into year-end if the remainder of large long positions are exited. However, it seems unlikely that prices will steadily decline going into USDA’s January 12 Stocks Report.

USDA’s January 12 Stocks Report will give a snapshot of U.S. stocks in storage on December 1, 2011. That snapshot will reflect exports and ethanol usage of corn. Because ethanol production has been particularly strong going into year-end — due primarily to ending Federal support programs — the Stocks Report could contain a surprise. Combining the uncertainty about potential report contents with South American weather discussion, the prospect of sudden export sales and the return of speculative fund money are likely to inhibit any substantial sell-off after January 1.

Many U.S. feed grain producers have remained patient with the recent price decline. Some producers are creatively pointing at the recent price decline as evidence of tighter margins when attempting to negotiate seed and fertilizer prices. Sales representatives push back that they, like many farmers, expect a pre-planting rally. Feed grain producers agree that there could be a “limited” rally, but point out that it is generally not advantageous to delay decision making until the last minute, while highlighting the fact that last season’s futures prices were higher (slightly, but still higher) than current price levels. Consequently, it is not a good year to increase costs on producers who take the initiative to plan ahead. While that dance of negotiation occurs, ethanol and livestock producers have an opportunity to take some preemptive action.

CBOT DECEMBER CORN FUTURES

Current Market Values:

U.S. WEATHER/CROP PROGRESS

U.S. Drought Monitor Weather Forecast: During the ensuing 5 days (December 15-19), a cold front is expected to move across the eastern third of the country and a weak low-pressure center is forecast to form along the front. Rains are expected to spread from the western Gulf Coastal states to the Mid-Atlantic. An area of high pressure is expected to settle over the lower Mississippi river valley during the weekend. High pressure across the west is likely to keep wind speeds elevated across the Great Basin and southwest, potentially increasing evaporation across Nevada and California. Another cold front is forecast to move across the northeast with a low-pressure center developing across the western gulf coast early next week.

The Climate Prediction Center (CPC) 6-10 day precipitation forecasts indicate enhanced probabilities for above-average precipitation across the southeast. The anticipated pattern would likely support drier than average conditions from Oregon to New Mexico to the middle Mississippi River Valley during the period from December 20-24. 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 504,700 MT for the 2011/2012 marketing year resulted as increases for Mexico (315,300 MT, including 6,900 MT switched from unknown destination and decreases of 35,000 MT), Japan (251,000 MT, including 105,300 MT switched from unknown destinations and decreases of 5,800 MT), China (123,700 MT, including 126,700 MT switched from unknown destinations and decreases of 3,000 MT), El Salvador (29,300 MT, including 17,800 MT switched from unknown destinations), Guatemala (20,700 MT, including 18,800 MT switched from unknown destinations), and Taiwan (18,100 MT), were partially offset by decreases for unknown destinations (273,300 MT), the Dominican Republic (19,300 MT), and the French West Indies (7,800 MT). Net sales of 1,200 MT for delivery in 2012/2013 were reported for South Korea (700 MT) and Mexico (500 MT). Exports of 886,900 MT were down 14 percent from the previous week and 5 percent from the prior 4-week average. The primary destinations were to Japan (296,400 MT), South Korea (172,100 MT), Mexico (124,500 MT), China (123,700 MT), the Dominican Republic (37,500 MT), and Taiwan (26,600 MT).

Barley: Net sales of 200 MT were reported for Taiwan. Exports of 100 MT were reported to Taiwan.

Sorghum: Net sales reductions of 8,300 MT resulted as increases for Japan (5,900 MT, switched from unknown destinations), were more than offset by decreases for Mexico (8,300 MT) and unknown destinations (5,900 MT). Exports of 29,600 MT were reported to Mexico (23,700 MT) and Japan (5,900 MT).

FOB

DISTILLERS DRIED GRAINS WITH SOLUBLES (DDGS)

The U.S. DDGS market has picked up significantly with new lower values. Short positions for some key markets have been recently covered, especially for a number of California dairies and Mexican buyers. The market noticed a significant volume of tonnage traded for January forward, particularly Chicago containers. As noted by a trader, “[This] might have been the biggest week ever!”

Japan is increasing its inclusion rates of DDGS, particularly within the dairy sector. Even though DDGS imports are small compared to overall maize consumption, imports this year have increased to more than 40 percent.

Trade has indicated that in addition to lower DDGS price levels, there are sufficient stocks within the ethanol industry to cover short positions. Expectations are for a healthy upcoming week of trade for our export markets, just in time for the Holiday Season!

Comments and Trades reported:

Local Trade:

• No local trade to report.

Trade bids/offers:

• .

Ethanol Comments:

The Wall Street Journal published an article reinforcing the fact that corn-based ethanol is likely to remain the dominant domestic biofuel for a significant period into the future. The December 14 article pointed out that Congress mandated the purchase of 250 million gallons of cellulosic ethanol in 2011 but less than 7 million gallon was actually produced. There seemed to be an assumption by some in Congress that if the government mandates and subsidizes an action, success will be the end result. However, last year the EPA had to dramatically drop its cellulosic ethanol mandate. The United States’ successful ethanol production has been, and remains, primarily from corn.

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COUNTRY NEWS

Argentina: Argentina’s government has recently attempted to increase tax receipts from large agriculturally related firms while also encouraging greater investment. Due to large defaults on government debt in 2002, the nation is virtually shut out of global credit markets. Making the situation even more difficult is the fact that the current administration is seeking to control inflation by supporting the peso. That action appears to be reducing confidence and resulting in “capital flight.” From the perspective of Argentine farmers, it may be better to just let the peso depreciate.

Australia: Australia is in the middle of its wheat harvest, and production could exceed 29 MMT, according to a story on DTN. If correct, that would be a new record production and it would recharge available stocks of feed wheat to Asian markets. (Australian production was 27.89 MMT in 2010/11 and 21.83 MMT in 2009/10, down due to dry conditions.)

Brazil: The Brazilian economy is doing well and there seems to be less interest in courting foreign investment, particularly direct land investment. The Brazilian government started limiting the amount of foreign investment in agricultural production in 2010. The combination of uncertainty about ownership rights and the recent setback in grain and oilseed prices is rumored to be constraining this season’s acreage expansion more than some analysts expect at this time

China: Chinese allegations about unfair pricing of U.S. DDGS may be a reason for inconsistent U.S. DDGS exports. However, a recent trip by USGC members may have alleviated some concerns. USGC held workshops in Guangzhou and Qingdao to educate market participants about DDGS while bringing buyers and sellers together. Such action could be an important achievement.

Japan: U.S. corn exports to Japan have been down by more than 15 percent and Japan has increased feed wheat consumption; however, an 80 million bushel sale of corn was announced this morning. News of the sale helped support corn prices today. Japan’s intent to remain a large grain importer is evident in the expansion of the Kushiro port in Hokkaido to accommodate larger vessels

OCEAN FREIGHT MARKETS AND SPREADS

OCEAN FREIGHT COMMENTS

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting:

The market is getting into the holiday mood. Traders are just trying to even up their positions prior to taking time off for the holidays, and trade activity is getting thin. If you have to buy something for December you will pay a premium for the spot position but January/February values are still inverted/discounted to the nearby market.

Capesize and Panamax freight gained support this week from higher bunker fuel prices and tightness in the spot market.

Below is a recent history of freight values for Capesize vessels of iron ore from Western Australia to China:

The charts below represent total (MT) month-to-month Hong Kong container shipments for Jan.-Sept. 2009, Jan.-Sept. 2010 and Jan.-Sept. 2011.

INTEREST RATES