Market Perspectives August 9, 2013

1. Chicago Board of Trade Market News

Outlook: USDA will update their acreage and production estimates on Monday 12 August and a substantial level of bearish expectations is already built into present futures prices. The large short position currently held by speculators is evidence that many traders anticipate that Monday’s data can drive prices even lower. This may be correct if USDA releases a yield estimate over 160 bushels per acre that produces total corn production above 14 billion bushels and ending stocks well above 2 billion bushels.

Monday’s data will be based upon field surveys by NASS to determine USDA’s state-by-state yield estimates and those results do not have an extremely strong correlation with the contents of the weekly Crop Progress reports. The average expectation from analysts is for USDA to increase their yield projection from 156.5 up to 157.7 bushels per acre. However, uncertainty is indicated in the range of analyst estimates from a high of 161.2 down to a low of 155.1 bushels per acre.
Favorable weather conditions lessen the prospect that the yield estimate will be lower than the current estimate of 156.5 bushels, but it is not entirely impossible. USDA focuses on accuracy and they will relay whatever the field data indicates. Data for the weekly Crop Progress reports is not obtained in such a rigorous format.
The most recent weekly Crop Progress report classified national average corn conditions as 64 percent good to excellent and that is above the five-year average (and last year’s drought-ridden conditions) but still below the 2010 conditions when the average yield was 152.8 bushels. The 1 percent increase to 64 percent in corn conditions occurred as improvements in seven states, particularly Illinois, offset declines in nine other states and unchanged ratings in two others. It will be interesting to see what the more extensive field survey data indicates on Monday.

2. CBOT Corn Futures

December Corn Futures

CBOT Table

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

U.S. Drought Monitor Weather Forecast: Over the period of August 9-11, temperatures will continue to remain below-normal over most of the country, with departures of six- to- nine degrees Fahrenheit anticipated over the Plains and West Coast. Above-normal temperatures are expected in the Southern United States and the Northern Rocky Mountains. A wet pattern is likely to continue over much of Colorado, Kansas, Missouri and into Kentucky and Tennessee. The forecast is anticipating amounts of three inches over most of Kansas and Western Kentucky. Dry conditions are projected over most of the Western United States and into Texas. 

The CPC forecast for August 11-15 anticipates the best chances for below-normal temperatures will be over the Plains, Midwest, Northeast and especially in the Great Lakes region. The best chances for above-normal temperatures will be in the Southern United States and Pacific Northwest. Most of the country has above-normal chances of recording above-normal precipitation during this time frame. The greatest chances of above-normal precipitation will be over the Southeast. The Great Basin, Southwest, and most of Texas have the best chances of recording below-normal precipitation for the period. Follow this link to view current U.S. and international weather patterns and the future outlook: Weather and Crop Bulletin  

4. U.S. Export Statistics

Corn: Net sales of 290,100 MT for 2012/13 resulted as increases for Japan (169,000 MT, including 44,400 MT switched from unknown destinations and decreases of 9,000 MT), Saudi Arabia (69,700 MT, including 65,000 MT switched from unknown destinations), Venezuela (66,500 MT), Panama (28,000 MT), and Honduras (22,300 MT), were partially offset by decreases for unknown destinations (101,200 MT). Net sales of 220,900 MT for 2013/14 were primarily for Mexico (96,400 MT), unknown destinations (53,300 MT), Japan (30,300 MT), and Colombia (21,700 MT). Exports of 430,400 MT were up 31 percent from the previous week and 39 percent from the prior four-week average. The primary destinations were Japan (212,200 MT), Saudi Arabia (69,700 MT), Mexico (67,000 MT), and Venezuela (46,500 MT). Optional Origin Sales:  For 2012/13, outstanding optional origin sales total 65,000 MT, all South Korea. For 2013/14, outstanding optional origin sales total 148,000 MT, and are for Japan (48,000 MT) and Mexico (100,000 MT).

Barley: There were no sales reported during the week.  

Sorghum: There were no sales reported during the week. Exports of 32,200 MT were reported to Mexico (31,200 MT) and China (1,000 MT). Optional Origin Sales: For 2013/14, outstanding optional origin sales total 60,000 MT, all China.

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: 

DDGS had a mixed week as prices varied from $5.00 lower to $5.00 higher. It seems that foreign buyers still have some inventory gaps to fill between now and harvest. Several merchandisers reported that export demand is strong for shipment through March. Most of that demand continues to be for containers but there is also a growing interest in purchasing for the bulk market as well. DDGS merchants note that logistical factors this fall could become “interesting” as competition heats up for available containers. 

Domestic buyers continue to monitor the inverse in corn futures and purchase for their immediate needs. Corn harvest is beginning in parts of Texas and will move northward as the season progresses. This harvest is pressuring the southern basis so that end-users in those regions are now paying just slightly more for their delivered corn than ethanol plants further north. The result is that some of the domestic poultry DDGS users are requesting lower prices.
According to a recent article by Dave Juday of World Perspectives, the largest consumers of DDGS are the beef sector (41%), dairy (26%), exports (23%), pork (6%) and then poultry (4%). Buyers in all of these sectors may seek to extend coverage of the DDGS purchases as inverted old-crop prices decline and it becomes increasingly evident that a bottom is forming in the new-crop corn market.


Ethanol Comments: EPA announced this week that the 2013 blending mandate will remain unchanged at 13.8 billion gallons of ethanol but the agency hinted that adjustments could be made to 2014 requirements. This is a rather important issue for ethanol facilities because it implies that market conditions could become increasingly competitive next season. The strongest position next year will likely be held by ethanol producers who are able to secure contract agreements on production and lock-in profitable hedges. Opportunities are currently presenting themselves for the development of such strategic initiatives. The opportunity is not indefinite because futures prices are increasingly relaying a message to farmers that they need to expand into soybeans and reduce their corn acreage next season. If so, corn prices could be higher in the second half of 2014.

Last week’s consistent increase in ethanol producer margins caused production to rebound this week to 853,000 barrels per day (bpd), up from 832,000 bpd the prior week. Imports also increased to 56,000 bpd, up from 13,000 bpd the prior week. Ethanol stocks grew to 16.7 million barrels which is up from the prior week’s level of 16.5 million barrels. The present stock levels of 16.7 million barrels is still 10.4 percent below a year ago and 7.5 percent below the stock levels of two years ago. The lower year-to-year stock levels have been important in enabling ethanol producers to maintain recently favorable margins. The differentials between corn and co-products values indicate that ethanol producer margins declined this week in three of the four following regions:

• Illinois differential increased to $2.41 per bushel. Up from $2.26 the prior week and above $1.41 for this same week a year ago.
• Iowa differential decreased to $2.37 per bushel. Down from $2.58 the prior week but above $1.47 for this same week a year ago.
• Nebraska differential decreased to $2.01 per bushel. Down from $2.09 the prior week but above $1.70 for this same week a year ago.
• South Dakota differential decreased to $2.47 per bushel. Down from $2.51 the prior week but above $2.04 for this same week a year ago.

7. Country News

China: Chinese health officials have officially cleared the country’s first major shipment of GMO corn from Argentia, according to Reuters. The 60,000 MT shipment is set to be used in hog and chicken feed. China has also recently approved Ukrainian corn for import in an effort to meet increased demand for animal protein.

France: French barley exports have risen by 39 percent over levels seen last year to 5.97 MMT, reports Bloomberg News. Corn exports on the other hand have fallen by 4.7 percent to 6.43 MMT.

Japan: The Japanese Ministry of Agriculture, Forestry and Fisheries has reported that the country purchased 52,590 MT of feed wheat and 39,795 MT of feed barley this week, according to Bloomberg News.

South Africa: Yellow corn futures have dropped their furthest in two weeks as the rand appreciated against the dollar, which has made imported grain a cheaper alternative to domestic supplies, reports Bloomberg News. Yellow corn for September delivery declined by 1 percent to $216/MT, while white corn for December delivery fell by 0.4 percent to $236.93/MT.

8. Ocean Freight Markets and Spread

9. Ocean Freight Comments

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: I would like to give you a lot of exciting news about the freight markets, but there just isn’t any. The market is in the dull summer holiday period and is tracking lower. So, at the risk of sounding like a broken record, I will just say that overall things are down on reduced volumes. At 962, the Baltic Panamax index is back down to where it was in late June and feels like it will slip further.

The Capesize market was able to muster some support from improved iron ore business out of West Australia, and is slightly higher for the week. Everyone is anticipating better (higher) markets once we get into the October-November new crop harvest period in North America.

No significant new news yet in the PNW Grain elevator International Longshore and Warehouse Union (ILWU) labor situation.

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

The charts below represent January-December 2011 and January-December 2012 annual totals versus January-June 2013 year-to-date container shipments for Japan.

10. Interest Rates