Market Perspectives April 17, 2014

1. Chicago Board of Trade Market News

Week in Review
Outlook: Corn contracts spent the first half of this week in a relatively flat trading range before drifting lower into the weekend. The planting pace of 3 percent complete is modestly below the five-year average of 6 percent complete at this time, but that fact is of no significant importance. U.S. farmers can plant 40 percent of the corn crop in a week if weather conditions are conducive.

The slight sell off in corn contracts this week could have been more pronounced without the influence of higher price action by wheat and soybeans. Wheat contracts rallied on concerns about unfavorable weather hurting the U.S. winter wheat crop and soybeans rallied because of an active U.S. crush rate. Corn contracts remained stationary during that same time period, even though last week’s data from USDA was more bullish for corn and the export pace for U.S. corn is favorable.

Speculators would like to drive soybeans to new heights but chart patterns for nearby soybean contracts look increasingly vulnerable to the formation of a bearish head and shoulders pattern. As well, wheat is a hearty plant and has time to improve under more favorable growing conditions. Eventually selling in those two contracts could have some downside influence on corn. Ironically, the extent of any sell off in corn within the next six weeks may be less than for either soybeans or wheat.

As noted last week, the near-term outlook is that corn contracts could experience a near-term price setback and then be followed by another rebound of some sort going into corn pollination. The condition holds that the size of any pre-pollination rebound in corn futures will be heavily influenced by weather.

2. CBOT Corn Futures

May Corn Futures

CBOT Table

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

U.S. Drought Monitor Weather Forecast: Over the next week, there is a good chance of precipitation from the plains to the upper Midwest, with more than an inch anticipated from northern Wisconsin into eastern Nebraska and south into Oklahoma and Arkansas. A storm system will move into the Pacific Northwest, potentially bringing up to four inches of rain into portions of Washington. In the southeast from Florida up the Carolinas coast, there is a good opportunity for heavy rain as well. A warming pattern looks to bring above-normal temperatures over much of the United States from the Great Basin into the northeast, and high temperatures will be up to 10-12 degrees Fahrenheit above normal in the central Plains.

The 10-day outlook continues to show higher-than-normal chances for above-normal precipitation over most of the southern plains, Midwest, and Pacific Northwest. The best chances for above-normal temperatures are in the middle and eastern sections of the United States, from the Rocky Mountains and to the east. Chances for cooler-than-normal temperatures are greatest along the West Coast. 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

Export Sales and Exports
U.S. Export Inspections
USDA Grain Inspections for Export Report
Corn: Net sales of 601,900 MT for 2013/14 were down 9 percent from the previous week and 36 percent from the prior four-week average. Increases were reported for Japan (161,000 MT, including 115,300 MT switched from unknown destinations, 53,000 MT switched from China, and decreases of 168,200 MT), Israel (120,000 MT, including 55,000 MT switched from China), South Korea (119,800 MT), Taiwan (106,700 MT, including 57,600 MT switched from China), Costa Rica (94,400 MT), Mexico (80,500 MT), and Saudi Arabia (73,800 MT, switched from unknown destinations). Decreases were reported for unknown destinations (268,400 MT) and China (168,000 MT). Net sales of 192,600 MT for 2014/15 were reported for Japan (141,800 MT) and unknown destinations (50,800 MT). Exports of 1,111,000 MT were down 9 percent from the previous week and 7 percent from the prior four-week average. The primary destinations were Japan (374,800 MT), Mexico (229,300 MT), Colombia (80,700 MT), Egypt (74,800 MT), Saudi Arabia (73,800 MT), Taiwan (69,500 MT), and Venezuela (55,000 MT). Optional Origin Sales: For 2013/14, outstanding optional origin sales total 123,000 MT, all South Korea.

Barley: There were no net sales or exports reported during the week.

Sorghum: Net sales reductions of 52,500 MT for 2013/14 resulted as increases for China (63,000 MT, including 58,000 MT switched from unknown destinations and decreases of 1,000 MT) and Japan (6,000 MT, switched from unknown destinations), were more than offset by decreases for unknown destinations (121,500 MT). Exports of 129,300 MT were reported to China (123,300 MT) and Japan (6,000 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: On average DDGS prices did decline this past week, but price reductions were not consistent or uniform. Domestic DDGS rates for barge and vessel delivery to the Gulf of Mexico declined by about $10 per MT. Domestic prices also declined for delivery to the eastern destinations of the United States because of improved logistical movement in that region of the country. As well, some of the eastern buyers of DDGS had previously “doubled-down” on their DDGS orders and had sufficient stocks on hand to take care of their near-term needs. Alternatively, rail issues continue to exist in getting product to some of the United States’ western domestic markets; rail delivered DDGS prices into the Pacific Northwest (PNW) increased by $10/ MT and by $17/MT into California for the month of May.

Rates for containerized exports of DDGS declined for all Asian locations except Malaysia and Indonesia this past week. The higher rates into these two locations are presumably related to freight costs. The containerized DDGS costs to the other Asian locations declined last week by an average of $7/MT for May delivery, $10 for June delivery, and $4 for July delivery. Also consider that the average price for DDGS into those other Asian locations in the months of June and July are about $6 less than for May. This fact is an additional testament to the advantage buyers can have by purchasing ahead rather than constantly remaining in the spot market.

One DDGS merchandiser reports that he is trading for the July/August/September period at $15 below his current May asking price and $25 dollars below his May price for the October/November/December time period. While such spreads may not widen any further, it is possible that the nearby May prices for corn and DDGS could have some more downside in the near-term. (Please see the preceding discussion in the Outlook section of today’s report.) Both domestic and foreign buyers seem to be utilizing setbacks in DDGS prices as opportunities for scale down buying. Vietnamese buyers purchased 2,500 MT of DDGS this past week for the June to July time period. There are currently plenty of inquiries seeking lower rates and so additional buying seems likely if DDGS prices continue to drift lower for the next few weeks.

Ethanol Comments: Additional ethanol facilities have come back on line after performing spring maintenance. As a result, U.S. ethanol production increased to an average daily rate of 939,000 barrels per day (bpd) for the week ending April 11. That is a fairly substantial increase from the prior week’s average daily level of 896,000 bpd. Such an increase is anticipated to further compress the differential between the spot prices of co-products in comparison to corn (data for which is not available this week due to Friday being a holiday), but that differential may not decline too fast because ethanol stocks shrank even as the weekly production increased.

U.S. ethanol stocks declined from 16.4 to 16 million barrels for the week ending April 11. As well, ethanol imports fell back to zero from the prior weeks’ level that averaged 38,000 bpd. This fact could imply that ethanol imports may only become cost effective when U.S. ethanol margins are at pronounced levels, which was temporarily the case due to recent adverse winter weather.

Rail related logistical issues have improved, ethanol production has increased and margins are expected to decline back down toward recent historical norms. However, the decline in stocks implies that demand remains strong for U.S. corn-based ethanol and the drop off in sugar-based ethanol imports seems to imply that competition is presently limited for U.S. facilities.

7. Country News

Canada: The growing season on the Canadian prairie has lengthened by about two weeks over the course of the past half century, leading many to believe that Canada’s grain belt could become a major corn-growing region, according to Bloomberg News. Last year, farmers planted a record 405,000 acres of corn in Manitoba, Alberta and Saskatchewan, which was twice the amount planted the year prior and eight times the amount planted 20 years ago. 

South Africa: Corn production estimates have been raised by 0.3 percent, according to Bloomberg News. Farmers could harvest 13 MMT of corn, which is up from last month’s forecast of 12.95 MMT and 11 percent above the 11.7 MMT brought in last year. This crop may be South Africa’s largest since 1981 when it produced 14.1 MMT. Yellow corn for July delivery dropped by 0.2 percent to trade at $209.18/MT.

8. Ocean Freight Markets and Spread

Bulk Freight Indices for HSS

9. Ocean Freight Comments

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: Was this a week of finding a temporary bottom to the freight market? For the Panamax sector in the Atlantic it very well may have been. The P2A Panamax index in the Atlantic seemed to bottom out on Monday and improve gradually through the week, although the physical market remains soft. Brokers are telling me that spot cargos can be traded at lower numbers than indicated below for the 45-day market.

All other markets, including the Panamax sector in the Pacific, continued to languish. The Chinese cancellation of soybean cargoes (soybeans and freight) has obviously been a negative influence as well as a demoralizing one on the market. Further, this is a slow holiday weekend with many taking off on Good Friday.

The Capesize market continued to be the biggest loser. So far the first half of 2014 has not been kind to vessel owners or operators.

This is also the week that the first Panamax vessel of Brazilian Soybeans is supposed to arrive in the Mississippi River for discharge via Floating Rig into barges with the cargo moving upriver to processing markets in the Southeast.
Baltic Panamax Dry-Bulk Indices
Below is a recent history of freight values for Capesize vessels of iron ore from Western Australia to China:
Capesize Iron Ore
U.S. Asia Market Spreads

The charts below represent January-December 2013 annual totals versus January 2014 year-to-date container shipments for Japan.

Japan 2014
Japan 2013
International Freight Rates for Feed Grains

10. Interest Rates

Interest Rates