Market Perspectives August 23, 2013

1. Chicago Board of Trade Market News

Outlook: The December corn contracts started off the week with a strong rebound to about $4.85/ bushel, which was about 40 cents higher than the prior-week’s low. That rebound occurred in part because average corn conditions across the Corn Belt were expected to decline, and conditions did decline by 3 points to 61 percent good-to-excellent. Crop conditions could decline again next Monday, but will probably remain above the five-year average, which contains the poor ratings of the two prior years.

There will be export competition this year, but the proportional market share captured by competitors this season is expected to be smaller as stocks of quality U.S. corn rebound. There are legitimate expectations that Chinese corn imports could reach 10 MMT in the approaching 2013/14 season, and the United States is expected to still remain the largest supplier to China.

Numerous buyers are waiting on U.S. basis levels to decline as the harvest approaches. So far, basis in the interior of the Corn Belt and the export market have remained rather stout as harvest approaches. The degree to how much basis will weaken into the harvest will be heavily dependent upon the price action of futures contracts. The speculative community currently has a record short position. If they are successful in eventually driving the December contract down to the $4.00/ bushel region then basis is likely to remain strong by historical standards. On the other hand, if the funds get chased out of their position and futures prices rebound in the harvest period, then basis will weaken.

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 23-26, there is an above-normal chance for precipitation mainly in the Southeast, the extreme Southern Plains, and the Southwest. Temperatures are expected to be above-normal across the northern part of the country from Montana through New England and below-normal on both the East and West Coasts. 

For the period of August 27-31, the odds favor normal- to- above-normal temperatures across the entire Contiguous U.S. Above normal-precipitation is likely across the northern half of the country from Maine to eastern Oregon. 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 58,200 MT for 2012/13 resulted as increases for Mexico (35,800 MT), Japan (18,400 MT, including 18,100 MT switched from unknown destinations), Honduras (13,500 MT, including 12,300 MT switched from unknown destinations), Venezuela (10,000 MT), and Taiwan (5,100 MT), were partially offset by decreases for unknown destinations (30,400 MT) and Canada (1,600 MT). Net sales of 434,400 MT for 2013/14 were primarily for Mexico (166,300 MT), Japan (101,600 MT), and Guatemala (59,100 MT). Exports of 173,500 MT were down 54 percent from the previous week and 50 percent from the prior 4-week average. The primary destinations were Mexico (103,600 MT), Japan (28,600 MT), Panama (15,400 MT), and Honduras (13,500 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 Mexico (100,000 MT) and Japan (48,000 MT).

Barley: Net Sales of 200 MT were reported for South Korea. There were no sales reported during the week. 

Sorghum: Net sales of 3,600 MT for 2012/13 resulted as increases for Japan (7,700 MT, including 6,100 MT switched from unknown destinations) and Mexico (2,000 MT), were partially offset by decreases for unknown destinations (6,100 MT). Net sales of 120,000 MT for 2013/14 were for China (60,000 MT) and unknown destinations (60,000 MT). Exports of 20,800 MT were reported to Japan (18,700 MT) and Mexico (2,000 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 merchandisers report that Chinese buyers continue to look for near-term coverage. One merchandiser was able to sell about 13,000 MT this week, with the majority priced for October shipment. Most of these sales were to China, but small amounts were also destined to Taiwan, Malaysia, Japan, Vietnam and Korea.

This week’s limited rebound in prices has reduced buyer inquiries about the September period because they don’t want to get caught holding old-crop product when new-crop becomes available. As noted in the ethanol discussion, some influence from old-crop prices could last into the first part of October.

DDGS buyers continue to inquire about prices for the October-March period, but the fact that farmer selling has not picked up makes it difficult for merchandisers to offer the prices that customers are currently requesting for that time. As a result, domestic DDGS buyers are buying day-by-day in anticipation of lower forward contracts values. That strategy makes sense if one is assuming that corn prices will eventually remain compressed under the weight of a large harvest for an extended period of time. Otherwise, it probably makes sense to discuss prospective strategies with merchandisers prior to harvest. Such discussions also enable the merchandisers to investigate the prospects of incorporating both basis and container freight rates.

Ethanol Comments: The preceding Outlook section touched upon the stronger-than-normal basis in the Corn Belt. It is this higher basis that is causing corn to flow from the earlier harvest into southern states and back into the Corn Belt. A story by Reuters reports that 1,000 barges of corn are expected to move northward by the middle of September to Midwest ethanol plants from southern farms. Current market dynamics seem to imply those ethanol facilities, and their resulting DDGS clients, should not expect basis levels to decline to historical levels prior to October; and then much will still depend upon the price action of new-crop futures contracts.

Ethanol production of 844,000 barrels per day (bpd) remains sufficient to meet demand without saturating the market; this is a 13,000 bpd decline from the prior week. The result is that total U.S. ethanol stocks of 16.5 million barrels is basically unchanged from the prior week’s level of 16.4 million barrels, and about 11 percent below last year’s stocks level of 18.5 million barrels. Ethanol imports continued for the seventh week in a row, but the inflow of 19,000 bpd is almost half the prior-week’s level of 36,0000 bpd, and substantially below the same week a year ago level of 68,000 bpd.
There was a slight decline in implied margins this week for ethanol producers in the regions of Illinois, Iowa and Nebraska. There was slight improvement for implied margins in the South Dakota region. Returns remain above a year-ago in all of the regions, which is indicated by the following differentials between corn and the value of co-products values:
• Illinois differential declined slightly to $2.36 per bushel, which is in comparison to $2.40 the prior week and $1.56 for this same week a year ago.
• Iowa differential declined slightly to $2.20 per bushel, which is in comparison to $2.28 the prior week and $1.50 for this same week a year ago.
• Nebraska differential declined slightly to $1.98 per bushel, which is in comparison to $2.02 the prior week and $1.90 for this same week a year ago.
• South Dakota differential increased slightly to $2.64 per bushel, which is in comparison to $2.57 the prior week and $1.85 for this same week a year ago.

7. Country News

Argentina: Deputy Agriculture Secretary Oscar Solis has indicated that Argentina will likely export 22-24 MMT of the 2012/13 corn crop, an increase that suggests the government will authorize increased exports, according to Reuters. This potential increase in exports comes on the heels of last month’s 23 percent increase in the corn outlook due to larger-than-expected planting acreage. So far, Argentina has authorized the export of 17 MMT of corn from the 2012/13 crop.

Europe: The corn harvest in Bulgaria and Romania has started three weeks earlier than usual this year, reports WPI. The corn crop has matured at a faster-than-usual rate this year due to hot and dry weather during July and August following the pollination period. However, no major impact on yields is expected.

South Africa: South African corn futures fell again after speculation that wet weather in the U.S. could lead to a bumper crop caused a drop in U.S. prices, reports Bloomberg News. White corn for December delivery fell by 0.6 percent to $230/MT, while yellow corn dr opped 0.7 percent to $217.21/MT.

Further on South Africa. WPI reports that a new drought resistant corn seed, 30y87, has been developed there. This new strain has the potential to greatly improve yields; however, it requires advanced farming techniques and accurate fertilizer applications, which could hinder its adoption by the majority of small farmers.

Tunisia: The FAO is reporting that Tunisian grain harvest has fallen by 47 percent this year, as persistent dry weather forced farmers to reduce their planting acreage, according to Bloomberg News. The crop has fallen to 1.37 MMT, which is down from 2.61 MMT last year. Of this total, some 320,000 MT consists of barley. The country’s grain imports may jump as high as 3.57 MMT in 2013/14, which is 30 percent more than last year, and 23 percent higher than the five-year average.

8. Ocean Freight Markets and Spread

9. Ocean Freight Comments


Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: This week’s story was mostly a continuation of last week’s. We remain in the August doldrums and freight markets are waiting for the end of summer and a return of business. Gulf –Atlantic markets were softer all week but seemed to be leveling off as we hit the end of the week. Pacific Panamax markets continued to show some support and eked out small weekly gains. At this point I’m guessing that next week will prove to be a fairly flat market.


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 South Korea.

10. Interest Rates