1. Chicago Board of Trade Market News
Outlook: Corn contracts worked lower this week as large speculators were forced to adjust their portfolios with the arrival of the end of month and the end of quarter time periods. Basis remains firms as this weakness in futures is occurring and seems to indicate that producers are presently in no rush to sell while corn contracts test key levels of support. Many of those producers seemingly recognize that open interest is not collapsing as large traders adjust their positions. There also seems to be some recognition that while the overall planting pace of U.S. corn is in line with the five-year average, there is still acreage in the northern Corn Belt that remains unplanted even as the prevented planting dates relating to crop insurance approach.
Farmers are entitled to plant after the final planting date passes but the risk for a farmer increases because any acres planted afterward receives lower yield and revenue guarantees. (The coverage rate commonly declines at 1 percent per day). In contrast, the farmer who has been prevented from planting may choose to simply not plant at all and can receive compensation for 60 to 70 percent of the insured coverage. The primary incentive for farmers to select payment and skip planting is market prices. This season, the December corn contract has declined by more than a half dollar from the recent highs as the prevented planting dates approach.
The general outlook is that some level of U.S. corn acreage is going to be lost this season as a number of producers elect to receive payments rather than plant. The exact amount of that acreage decline will become more apparent when USDA publishes their Acreage report on June 30. Market participants may be particularly sensitive to this data since it is arriving at the same time that the majority of U.S. corn prepares to enter the crucial period of pollination.
3. U.S. Weather/Crop Progress
During the May 30-June 2 time period, precipitation is expected across the northern and central Plains and into the Southeast. At the same time, below normal temperatures are expected along the Mid-Atlantic Coast and in the states along the western Gulf of Mexico. Above-normal temperatures are expected in the center of the country and along the West Coast.
For the period of June 3-7, the odds favor normal to above-normal temperatures across the entire contiguous U.S., with the exception of the western Gulf of Mexico Coast. Below-normal temperatures are favored in around the Gulf of Mexico. Above-normal precipitation is likely from the central and northern Plains, through the Midwest and into the Mid-Atlantic and Southeast. Below-normal precipitation is expected from the Southern Plains through most of the West. 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 621,300 MT for 2013/14 were up 22 percent from the previous week and 27 percent from the prior four-week average. Increases were reported for Mexico (249,600 MT), Egypt (200,700 MT, including 60,000 MT switched from unknown destinations), Israel (93,100 MT, including 89,000 MT switched from unknown destinations), Colombia (83,400 MT, including 55,000 MT switched from unknown destinations), Portugal (59,600 MT, including 55,000 MT switched from Spain) and South Korea (59,500 MT). Decreases were reported for unknown destinations (155,900 MT), China (115,000 MT), Spain (55,000 MT) and Costa Rica (1,400 MT). Net sales of 90,900 MT for 2014/15 were reported for Mexico (89,600 MT) and Japan (1,400 MT). Exports of 1,210,200 MT were up 4 percent from the previous week and 1 percent from the prior four-week average. The primary destinations were Mexico (277,300 MT), Egypt (208,700 MT), Japan (205,300 MT), Colombia (142,600 MT), South Korea (67,800 MT), Vietnam (65,000 MT) and Portugal (59,600 MT).
Optional Origin Sales: For 2013/14, outstanding optional origin sales total 123,000 MT, all South Korea.
Barley: Net sales of 100 MT for 2013/14 were reported for South Korea. Net sales of 1,500 MT for 2014/15 were reported for Taiwan. Exports of 500 MT were reported to South Korea (300 MT) and Taiwan (200 MT).
Sorghum: Net sales of 110,500 MT resulted as increases for China (170,300 MT, including 58,300 MT switched from unknown destinations) and Canada (300 MT), were partially offset by decreases for unknown destinations (60,000 MT). Net sales of 60,000 MT for 2014/15 were reported for China. Exports of 58,400 MT were reported to China.
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Domestic rail-delivered DDGS prices saw another week of substantial declines of $9 per metric ton. Rate declines were particularly favorable for unit trades. There was a report of a unit trade trading to California in the high $240 per U.S. short ton range for June delivery. Additionally, 5,000 U.S. short tons also sold in the Chicago market at $233 for June delivery.
The average price for containerized DDGS to foreign markets was more stable this past week. The price stability in the average primarily occurred as declines in container rates to Indonesia, China, and the Philippines were offset by increases to South Korea, Japan, Taiwan and Vietnam.
A noteworthy fact is that all DDGS buyers, domestic and foreign, are able to obtain prices for the July and August time period that are below the current spot market. The opportunity to purchase at lower prices in this summer period is attractive because it is prior to harvest in most of the U.S. corn belt.
Domestic and foreign buyers appear to be waiting for a bottom to be defined in prices while there are more aggressive offers from DDGS merchandisers who are trying to stir up demand. The most talented buyers seem to be those who are able to buy while prices are in decline but the more common tendency is for most end-users to step back when prices decline and become more aggressive once prices start to rebound.
Ethanol Comments: The ethanol production level of 927,000 barrels per day (bpd) for the week ending May 23was virtually unchanged from the prior week’s production level of 925,000 bpd. The increase in ethanol stocks to 17.5 million barrels from the prior week’s level of 17 million barrels is attributable to changes in demand since ethanol imports have fallen back to zero.
Changes in consumer purchases are commonly influenced by factors such as holidays and weather, which in turn are influenced by the flow of fuel from refineries to service stations that can cause an alteration of ethanol stocks. The fact that ROB gasoline holds a premium to ethanol is incentive for domestic blenders to mix at the maximum allowable levels.
Other nations whose societies could benefit from improved octane levels could also find the use of U.S. corn-based ethanol to be advantageous, and the recent sell-off in corn prices has improved the availability of this product. Improved ethanol producer margins are implied by the following differentials between the price of corn and processed co-products:
- Illinois differential is $4.12 per bushel, in comparison to $3.83 the prior week and $2.52 a year ago.
- Iowa differential is $4.02 per bushels in comparison to $3.62 the prior week and $2.09 a year ago.
- Nebraska differential is $3.70 per bushel, in comparison to $3.44 the prior week and $2.37 a year ago.
- South Dakota differential is $4.22 per bushel, in comparison to $3.97 the prior week and $2.21 a year ago.
7. Country News
Argentina: Argentina’s foreign currency reserves are expected to get a much needed boost as farmers begin exporting the remainder of the country’s record agricultural harvest (including corn and sorghum) of 108 MMT, according to Bloomberg News. However, as of May 27, roughly 3.4 million hectares of corn remained unharvested due to persistently excessive rains that are threatening the crop’s quality. In comparison, only 1.4 million hectares were still unharvested this time last year. Despite these fears, it is still believed that Argentina will bring in some 55 MMT of corn, which is around 15 percent more than it harvested last year.
Brazil: Shipments of corn at Brazil’s Paranagua port were unaffected by a truck driver protest on May 29, reports Reuters. The drivers are striking over fines imposed on them by the port authority for parking outside of designated zones. This change in policy was done in order to try and streamline the process of getting grain trucks in and unloaded expediently.
South Africa: Yellow corn for July delivery has fallen by 0.2 percent to $188.49/MT, according to Bloomberg News. This is the lowest South African yellow corn prices have been since February 13, 2013. The Crop Estimates Committee has raised its forecast for corn production by 4 percent, estimating that farmers will bring in some 13.5 MMT, which is an increase over last month’s 13.03 MMT prediction. Should this estimate pan out, it will be the largest South Africa has brought in since the 14.1 MMT it harvested in 1981.
9. Ocean Freight Comments
Ocean freight markets continued trending lower this week, but can you guess why?
Golden Destiny stated that “During the first four months of 2014, the average number of weekly reported new orders was 69, up by 86 percent year-on-year (37 new orders on average reported per week in January-April 2013) and up by 165 percent from 2012 levels. (26 new orders on average reported per week in January-April 2012)”
It has been reported that ship owners/investors have plunked down $40 billion in new building across the entire shipping sector in the first four months of 2014. If market players don’t learn from their past mistakes they will inevitably relive them. Or as the original George Santayana quote read, “Those who cannot remember the past are condemned to repeat it.” However you wish to state it, I hope shipping investors and their banks get the message. Daily hire rates for Capesize Bulk vessels is down to $10,900/day and Dry-Bulk Panamax vessels are at $7,200/day for long voyages, while short 20-day voyages can go for as low as $4,000/day.
I see about 12 Brazilian soybean vessels either at U.S. ports or on their way to U.S. ports. They are set to unload in all regions: the U.S. Gulf, West Coast California, East Coast and even the Great Lakes. It looks like all of our year end soybean carryout stocks will be from Brazilian beans?
In 2013 China accounted for 200 MMT of new cargo demand or 83 percent of world dry-bulk freight growth.
The charts below represent January-December 2013 annual totals versus January-February 2014 container shipments for Taiwan.