1. Chicago Board of Trade Market News
USDA released acreage and stocks data on Monday that was considered bearish for corn prices. A large increase in soybean acreage and no substantial offsetting reduction in corn acreage caused corn futures to be dragged down by sinking soybean contracts. The fact that corn stocks of 3.854 billion bushels were above the average estimate of 3.724 billion bushels also offered no buoyancy and buying interest dissolved as the probabilities of eventually being able to purchase at lower prices in the future increased.
A pool of traders went into Monday’s report holding long positions and it is likely to take four to five days of selling before those positions are readjusted enough to allow even a limited bounce. Feed grain end-users who had extended some coverage prior to the data release on Monday are unlikely to extend any more coverage at this time. Rather, they are expected to purchase on an as-needed basis going into harvest.
Condition ratings on Monday afternoon implied that excessive rains in portions of the Corn Belt had no major impact on the average conditions for U.S. corn. Continued stability of favorable crop conditions increasingly implies that the bottom in corn contract prices may still be a ways off. The outlook for feed grain prices has become more bearish after receiving the combination of additional USDA data on Monday
3. U.S. Weather/Crop Progress
During July 3-7, most of the contiguous United States is expected to receive a half-inch or less of rain, though there are a few exceptions. Northern and central Florida, the Outer Banks of North Carolina, near the mid-Atlantic Coast, and the southern and eastern New England coasts may get 2-4 inches of rain, in part from what is currently Tropical Storm (projected to be hurricane) Arthur and from an active cold front approaching from the west. In the Middle Mississippi Valley, 0.5-1.0 inch of rain is forecast during this period, while 0.5-1.5 inches of rain is expected in association with the onset of the Southwest Monsoon across portions of Arizona, New Mexico and northern Texas. Temperatures during the period are anticipated to be mostly within 4 degrees of normal, though very brief departures of 8-10 degrees above normal are projected for the northern Plains region.
For the period of July 8-12, there are enhanced odds of above-median rainfall in the east-central CONUS, the Great Lakes region, southern Florida, and the Southwest. Below-median precipitation is favored over the Pacific Northwest and the northern Rockies. Mean temperatures for this period are favored to be above-normal over approximately the eastern and western thirds of the lower 48 states and near to below-normal temperatures are favored over the central third of the CONUS. 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 290,700 MT for 2013/14 were up 14 percent from the previous week, but down 12 percent from the prior four-week average. Increases were reported for Mexico (129,800 MT), Japan (90,600 MT, including 49,000 MT switched from unknown destinations and decreases of 10,200 MT), the Netherlands (66,000 MT, including 60,000 MT switched from unknown destinations), South Korea (62,800 MT, including 60,000 MT switched from unknown destinations and decreases of 2,300 MT), Saudi Arabia (62,100 MT, including 55,600 MT switched from unknown destinations) and Portugal (53,900 MT, including 55,000 MT switched from Spain and decreases of 1,100 MT). Decreases were reported for unknown destinations (182,500 MT), Spain (55,000 MT), Egypt (39,400 MT) and Venezuela (25,000 MT). Net sales of 474,700 MT for 2014/15 were reported primarily for unknown destinations (224,800 MT), Japan (67,100 MT), Guatemala (59,600 MT), El Salvador (59,500 MT) and Mexico (59,000 MT). Exports of 909,500 MT were down 16 percent from the previous week and 18 percent from the prior four-week average. The primary destinations were South Korea (193,000 MT), Egypt (156,600 MT), Mexico (135,100 MT), Japan (78,900 MT), the Netherlands (66,000 MT), Saudi Arabia (64,100 MT) and Colombia (62,000 MT). Optional Origin Sales: For 2013/14, outstanding optional origin sales total 55,000 MT, all South Korea. Export Adjustments: Accumulated exports to Spain were adjusted down 66,000 MT for week ending June 19, 2014. This shipment was reported twice.
Barley: Net sales of 1,100 MT for 2014/1015 were reported for Taiwan (1,000 MT) and South Korea (100 MT). Exports of 500 MT were reported to South Korea.
Sorghum: Net sales of 60,900 MT for 2013/14 were reported for unknown destinations (58,000 MT) and China (2,900 MT). Net sales of 58,000 MT for 2014/15 were reported for unknown destinations. Exports of 1,700 MT were reported to China.
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS trading has been slow this week as market participants, who were waiting on the results of Monday’s USDA data, decided to continue waiting due to the reports’ bearish contents that continue to drive prices lower. DDGS buyers will stand back so long as corn prices appear to be headed lower. Domestic buyers are the largest consumers of DDGS, and their restrained action has resulted in domestic bulk rates of DDGS declining by as much as $20/MT in two days.
The price of containerized DDGS in the export market suddenly dropped an additional $6.00/MT for shipment out through September. The containerized export rate of DDGS did not drop as dramatically as the domestic bulk rates because increased competition for containers to specific destinations can partly offset the reduction in DDGS prices. Demand growth is occurring as lower prices encourage domestic and foreign buyers to increase the percentage of DDGS within feed rations.
Ethanol Comments: Relative stability in the price of crude oil and sinking corn prices increases the prospects for growth in ethanol exports due to attractive pricing in comparison to gasoline. While weekly data released by the Energy Information Agency (EIA) does not monitor ethanol exports, the stock levels are monitored. Any export flow will influence the level of total stocks. Such evidence has not yet materialized. Total U.S. ethanol stocks for the week ending June 27 remained unchanged at 18.2 million barrels. The positive fact is total stocks have leveled off while average daily production increased slightly to 953,000 barrels per day (bpd), above the prior week’s level of 938,000 bpd. The more negative fact is that total ethanol stocks are 17.9 percent above the year-ago level of 15.4 million barrels. Further growth in the year-to-year percent changes of stocks is expected to increasingly weigh on ethanol prices, if ethanol exports do not act as a pressure relief valve.
This week’s substantial sell-off in corn prices will have a positive influence on the spot differential between ethanol and co-product processing values across the U.S. Corn Belt. However, those values will not be released for the week ending July 4 due to the holiday; those values will be published next Friday.
7. Country News
Argentina: Laborers in Rosario, Argentina’s main grain port, will begin a strike of indefinite length on Friday, according to Reuters. This strike is occurring at the peak harvest period for Argentina’s corn crop. The CGT labor organization has indicated that a decision will be made on Monday to determine if the strike will continue. The reasons for labor conflict behind the strike have not yet been defined, however, it is assumed to at least partially stem from the Gernal San Martin Port Service Cooperative’s request to enforce higher tariffs on grain exporters.
Canada: Recent heavy rains in Canada’s growing regions have rendered up to 4 million acres of cropland too wet to sow, according to Bloomberg News. This is expected to negatively impact Canada’s barley production this year.
Ukraine: Grain exports are exceeding last year’s totals, particularly as Ukraine seeks new buyers in China and the Middle East, reports Bloomberg News. 2014 corn exports through July 1 were 20 MMT, and totaled 13.4 MMT in 2013. Barley exports so far in 2014 have totaled 2.4 MMT, which is up from 2.1 this time in 2013. Total grain exports through July 1 were some 32.1 MMT.
South Africa: Yellow corn for December delivery in Africa’s largest corn producing country currently stands at $181/MT, reports Bloomberg News. South Africa is predicted to produce 13.9 MMT of corn this year, which would be country’s largest crop since 1981.
9. Ocean Freight Comments
The ocean freight markets finally found bottom and bounced off of it. However, this does not mean that the fundamentals have changed enough to support a big rally. It just means the market has probably stopped declining for the moment and may be starting to stabilize at slightly higher rates than we have seen over the last month.This will at least help to pay for the higher fuel costs even if it does not return vessel operators to profitability.
The charts below represent January-December 2013 annual totals versus January-May 2014 container shipments for South Korea.