Market Perspectives - August 29, 2014

1. Chicago Board of Trade Market News

Outlook: Corn contracts began the week trading down 4- 5 cents due to improved rain forecasts ensuring that there would be sufficient moisture to meet the final states of a maturing crop. However, that ample moisture turned into excessive moisture in much of the western Corn-Belt. So, weather was not a catalyst to drive feed grain prices either higher or lower. A number of nations are presently shopping around to make sizable purchases of corn, but foreign prices are undercutting the price of U.S. corn at the Gulf. Thus, exports are not situated well to act as a catalyst to drive prices either higher or lower. Nor is domestic demand currently ready to influence prices since the prospect of abundant supplies is creating limited interest in extending coverage. As a result, the December corn contract has spent more than a month is a narrow trading range.

Open interest has been growing as corn as traders have been building sizable offsetting positions in corn contracts this past month. Corn has been able to remain in a narrow range because the two opposing sides are rather evenly balanced. The outlook is that this offsetting condition will not remain indefinite and one side will momentarily give way to allow for a sharp and limited price move. However, giving way and completely capitulating are not the same thing. As a result, the outlook is that volatility in corn contracts is likely to intensify from the present mundane levels going into calendar year 2015, but the prospects are not good during the next quarter for the occurrence of a single decisive move in one direction. 

3. U.S. Weather/Crop Progress

U.S. Drought Monitor Weather Forecast: The NWS WPC Quantitative Precipitation Forecast (QPF) calls for moderate-to-heavy precipitation accumulations (2-6 inches) in an area stretching from the High Plains eastward to the Upper Midwest with lesser accumulations across the Lower Midwest, New England, Mid-Atlantic and the Southeast. 1-3 inches are forecasted across the Gulf Coast region while the western U.S. will remain largely dry.

The 10-day outlooks call for a high probability of above-normal temperatures across California, the Southwest and the eastern half of the U.S. while below normal temperatures are forecasted across the Pacific Northwest, northern Rockies and Intermountain West. A high probability of above-normal precipitation is forecasted for the Eastern tier while the West will be below-normal.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 reductions of 32,700 MT for 2013/14 were down noticeably from the previous week and from the prior four-week average. Increases reported for Japan (88,400 MT, including 94,800 MT switched from unknown destinations and decreases of 7,300 MT), Colombia (62,100 MT, including 30,000 MT switched from unknown destinations and decreases of 3,000 MT), Canada (18,200 MT), Mexico (14,900 MT) and Jamaica (8,600 MT), were more than offset by decreases for unknown destinations (172,900 MT), South Korea (48,800 MT), Taiwan (9,900 MT), Costa Rica (1,400 MT), El Salvador (1,300 MT) and the Dominican Republic (1,200 MT). Net sales of 695,600 MT for 2014/15 were reported primarily for Colombia (140,900 MT), South Korea (125,000 MT), Costa Rica (120,500 MT) and Peru (81,800 MT). Exports of 1,002,700 MT were down 10 percent from the previous week, but up 6 percent from the prior four-week average. The primary destinations were Japan (278,900 MT), Mexico (262,200 MT), South Korea (224,500 MT), Colombia (65,100 MT), Peru (46,000 MT), the Philippines (43,400 MT) and Canada (28,300 MT). Optional Origin Sales: For 2013/14, outstanding optional origin sales total 55,000 MT, all South Korea. Export Adjustments: Accumulated exports to Mexico were adjusted down 29,700 MT for week ending August 21, 2014, because this shipment was reported twice. 

Barley: Net sales of 600 MT were reported for Taiwan. Exports of 3,200 MT were reported to Taiwan. 

Sorghum: Net sales reductions of 8,900 MT for 2013/14 resulted as increases for China (46,100 MT, including 55,000 MT switched from unknown destinations and decreases of 8,900 MT), were more than offset by decreases for unknown destinations (55,000 MT). Net sales of 219,000 MT for 2014/15 were reported for China (216,000 MT) and unknown destinations (3,000 MT). Exports of 163,400 MT were reported to China. 

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: Merchandisers reported a quiet week in the DDGS markets with limited domestic demand and small purchases from foreign buyers for containerized product, such as 500 MT destined for Haiphong at $230/MT, CFR for October, November, and December. There was also a sale of 200 MT for shipment to Kaohsiung at $223/MT, CFR for the first half of November. 

There is presently a common expectation among market participants that containerized grain shipments to Asia will increase as harvest approaches. As a result, there are rumors of a possible general rate increase (GRI) of approximately $100/40’ being initiated by shipping lines around the first of November, and potentially a second increase in December.

The significance of changing freight rates is already evident in the price change that occurred this past week in containerized freight rates to various Asian destinations. For example, the average cost of shipping a 40-foot container in the nearby August spot market increased $14 dollars to one destination and decreased by an average amount of $14 to a different destination. That is a substantial $28 spread between two different Asia destinations, and it must largely be attributed to variability in freight rates. In comparison, the weekly rates decreased rather uniformly in the more distant September and October time periods. 

U.S. ethanol facilities are presently making healthy margins and are running at full capacity. As a result, merchandisers are anxious for opportunities to move large volumes of DDGS. Buyers can make it much easier for merchandisers to offer the most favorable pricing terms by extending purchases into the future. 


Ethanol Comments: The recent increases in crude oil prices seems to have generated some additional interest for U.S. ethanol in the global export market. As a result of this outflow, there was a sudden one week drop of 5.1 percent as total U.S. ethanol stocks declined to 17.3 million barrels. That was almost a 1 million barrel decline in stocks from the prior week’s level of 18.3 million barrels. The strong but inconsistent export demand can go a long way in maintaining favorable margins for ethanol producers.

Ethanol producer could increase further if corn prices follow a similar pattern to this time a year ago: A year ago, nearby corn futures declined from a price of approximately $4.70 per bushel at the end of August 2013 to approximately $4.30 in January 2014. A similar price decline could occur this season but it will take multiple cards falling into place because corn contracts are presently priced about a dollar lower than a year ago. 

The decline in corn prices last season allowed the differential between the price of corn and combined value of ethanol and DDGS to improve. Of course, total U.S. ethanol stocks at this time were 16.3 million gallons, which is about 6.6 percent below current levels. A rebound in ethanol margins this season would require a continued drawdown in stocks, weaker corn prices and rebounding crude oil prices. This week, there was a modest decline in the differential between the cost of corn and the co-products at the majority of ethanol facilities for week-ending Friday, August 29, 2014: 

  • Illinois differential is $3.41 per bushel in comparison to $3.55 the prior week and $3.12 a year ago.
  • Iowa differential is $3.32 per bushel in comparison to $3.29 the prior week and $2.20 a year ago.
  • Nebraska differential is $3.28 per bushel in comparison to $3.31 the prior week and $2.71 a year ago.
  • South Dakota differential is $3.80 per bushel in comparison to $3.90 the prior week and $2.64 a year ago.

7. Country News

EU: The EU is expected to have corn yields 12 percent above those in 2013, reports Reuters. The current forecast for EU corn stands at 68 MMT, which is 6 percent above last year’s crop. Additionally, it is predicted that farmers will bring in 7.53 MT per hectare, which is up 11.8 percent from last year and 11.1 percent over the five-year average.

Russia: This year’s grain harvest has the potential to be Russia’s largest since the dissolution of the USSR, according to Bloomberg News. Russia’s Grain Union currently estimates the grain harvest at 104 MMT, which because of favorable weather going into the autumn is believed to have the potential to break the 2008 record of 108.2 MMT. Russia’s exports in the season that began July 1 will total at least 30 MMT. The Grain Union estimates that 20 MMT of barley and 12 MMT of corn will be harvested, while 4 MMT of corn and 3 MMT of barley will be exported. Last year, Russia harvested 92.4 MMT of grain and pulses.

South Africa: South African yellow corn has fallest to its lowest level in three years, according to Bloomberg News. Yellow corn for December delivery feel by 1.9 percent to $168/MT. The Crop Estimates Committee increased the country’s yellow corn outlook by 4.6 percent to total some 6.6 MMT.

Ukraine: The Ukrainian winter barley harvest has been completed, and yields are said to be up by 49 percent compared to 2013 with 5.5 MT being harvest per hectare, reports Reuters. 

8. Ocean Freight Markets and Spread

9. Ocean Freight Comments

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting:As we move closer to the North American fall corn and soybean harvest, Panamax and Supramax ocean freight markets are trying to extract better/higher rates. To some extent they are having success as rates are moving up slowly and remain at a carry out into October, November and December. Handymax and Handysize vessel sectors are also stepping up rates.

The big question will be how much more support they can gather in a market that is still tilted to the oversupply side. Capesize vessel markets seem to be running out of steam after climbing higher over the last three weeks.

World buyers need to be prepared to pay higher demurrage rates for harvest time shipments. Export logistics will certainly be a buyer’s biggest challenge this season.

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 2013 annual totals versus January-August 2014 container shipments for Indonesia

10. Interest Rates