1. Chicago Board of Trade Market News
U.S. Secretary of Agriculture Tom Vilsack announced that China’s yearlong ban on select varieties of corn has come to an end. This welcome news basically means that door for potential entry into China has been unlocked. However, the fact of having an unlocked door does not mean that it will be instantaneously flung open and vast quantities will flow though. Rather, it means that the door can be opened if and when the need arises, and that prospect alters market perceptions. As noted a couple weeks ago, it is perceptions that determines if corn approaching $4.00 per bushel is entirely too high and should be sold, or if it is still a buying opportunity.
Consider recent price action in the wheat market. There is presently no shortage of wheat anywhere in the world, but discussions that Russia would limit its wheat exports to favored cliental caused wheat contracts to suddenly increase in an exponential manner. With that example in mind, what trader will establish a large short position in corn contracts at present price levels prior to having more definitive knowledge of acreage and planting conditions in China and North America this spring?
Perceptions are being altered so that price setbacks during the next two months will be increasingly analyzed as potential buying opportunities rather than as confirmation of excessive supply. Ample supply should be available since U.S. producers are likely to sell into any further increase in corn prices after the New Year begins, but that selling will come in synchronized allotments rather than as all or nothing. The ebb and flow of supply and demand will carve out a trading range, which range is more likely to have somewhat of a positive slope during the next two months.
3. U.S. Weather/Crop Progress
For the upcoming period of December 18-22, heavy precipitation (up to 10 inches in northwest Oregon) is forecast for the Pacific Northwest, northwestern California and the northern Rockies, with lighter amounts in the central Rockies. A southern storm system should bring widespread moderate-to-heavy precipitation (1-4 inches) from central Texas eastward to Georgia and the Carolinas (including the expanding drought area in the Southeast), and lighter amounts along the Northeast Coast and in the central Great Plains. Mostly dry weather is expected in the Southwest (including southern California), High Plains, upper Midwest, Ohio Valley and southern Florida. Near to above normal temperatures should envelop most of the lower-48 States, with the greatest positive departures in the northern Rockies and Plains and upper Midwest.
For the ensuing period of December 23-27, the CPC 6-10 day outlooks tilt the odds toward subnormal precipitation from southern Oregon and California southeastward into the lower Mississippi Valley (lower Delta). Favorable chances of above median precipitation are expected across the northern tier of States, and in the eastern quarter of the nation, with the highest odds in the Great Lakes region and Northeast. Above median temperatures are expected in the Far West, Southwest and New England, with subnormal readings favored in the northern Plains and Florida. 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 693,500 MT for 2014/15 were down 28 percent from the previous week and 30 percent from the prior four-week average. Increases were reported for unknown destinations (268,700 MT), Mexico (159,900 MT), Japan (114,300 MT, including 45,400 MT switched from unknown destinations), Peru (64,000 MT, including 60,000 MT switched from unknown destinations), South Korea (59,600 MT) and El Salvador (29,500 MT). Decreases were reported for Taiwan (51,900 MT), Guatemala (17,800 MT) and the Dominican Republic (7,200 MT). Net sales of 5,000 MT for 2015/2016 were for El Salvador. Exports of 754,000 MT were up 11 percent from the previous week and 24 percent from the prior four-week average. The primary destinations were Japan (271,000 MT), Mexico (219,800 MT), Peru (64,000 MT), South Korea (60,400 MT), Venezuela (30,000 MT) and Panama (23,400 MT). Optional Origin Sales: For 2014/15, outstanding optional origin sales total 68,000 MT, all South Korea.
Barley: Net sales of 11,500 MT for 2014/15 were reported for Japan (10,000 MT) and Taiwan (1,500 MT). Exports of 600 MT were up 34 percent from the previous week, but down 93 percent from the prior four-week average. The destination was South Korea (600 MT).
Sorghum: Net sales of 147,700 MT for 2014/15 were reported for China (144,800 MT, including 55,000 MT switched from unknown destinations and decreases of 25,800 MT) and Japan (5,000 MT, switched from unknown destinations). Decreases were reported for unknown destinations (2,100 MT). Exports of 248,000 MT were reported primarily to China (243,000 MT) and Japan (5,000 MT).
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: China has returned as a buyer of DDGS. Chinese buyers have purchased as many as 15 cargoes, each totaling about 50,000 MT, of DDGS from the U.S. Corn Belt for the December through March time period, as reported by Bloomberg News. While China presently has abundant supplies of its own domestic corn, many Chinese livestock producers seem to have a particularly strong appreciation for DDGS.
DDGS merchandisers note that they are cautiously optimistic about the return of Chinese buyers, but many do plan to request that Chinese customers put down at least 20 percent payment for any future purchase. Until trust is fully regained, this may create somewhat of an advantage for foreign buyers from locations such as Mexico, Canada, Taiwan, Thailand, Vietnam, Indonesia and other Asian destinations.
One of the more active DDGS merchandisers noted the fact that just two weeks ago he was selling DDGS to a Vietnamese customer for February shipment at $248/MT. Today, that same DDGS is being sold at $323/MT - $75/MT higher. While it is obvious that the China news has definitely brought a more bullish tone to the market, merchandisers have not forgotten about their established customer base.
U.S. livestock producers also have developed an appreciation for DDGS in their rations. These buyers had been purchasing their DDGS needs on a hand-to-mouth basis because of the assumption that abundant stocks of corn and lack of Chinese buying would cause competition to keep a lid on prices. Many of these buyers also assumed that the recent rebound in corn futures contracts was a temporary phenomenon. This assumption encouraged them to maintain their short-term purchasing strategy. However, U.S. livestock producers have become increasingly interested in knowing their longer-term feed costs because futures prices for U.S. livestock have recently become extremely volatile. The strength of the negotiating power of domestic livestock producers with DDGS merchandisers depends upon if they make longer-term agreements before or after foreign buyers do so.
DDGS prices have been steadily increasing and more buyers are willing to consider longer-term contracts. DDGS prices into the future are structured in the same manner as corn futures contracts, with prices higher this coming spring due to the costs of storage. Longer-term purchasing agreements with buyers enable DDGS merchandisers to fix the cost of their corn and allows them to then help the client shop for better logistical rates.
Ethanol Comments: The industry numbers seem to paint an interesting dynamic as weekly ethanol production continues to set new record levels, while ethanol stocks slowly declined even as the differential between the cost of corn and the return for co-products dropped off sharply. Consider this data: weekly ethanol production edged up to a new record high of 990,000 barrels per day (bpd) while total U.S. ethanol stocks dropped to 17.7 million barrels. This stocks level is below the prior week’s level of 17.8 million barrels and 13 percent above the year-ago level of 15.6 million barrels. (Note, this is a decline from the last reported percent one year ago of 15 percent).
The differential between the cost of corn and the return for the co-products of ethanol and DDGS has substantially dropped off during the week ending Friday, December 19, 2014.
- Illinois differential is $2.47 per bushel, in comparison to $3.33 the prior week and $3.97 a year ago.
- Iowa differential is $2.30 per bushel, in comparison to $3.02 the prior week and $3.40 a year ago.
- Nebraska differential is $2.29 per bushel, in comparison to $3.11 the prior week and $3.08 a year ago.
- South Dakota differential is $2.40 per bushel, in comparison to $3.11 the prior week and $3.60 a year ago.
7. Country News
EU: Recent increases in Chicago wheat futures contracts could result in higher EU wheat exports, which May then in-turn cause the EU to import more corn if feed wheat supplies tighten up reports Bloomberg News.
Morocco: Morocco’s grain imports for the June-October period were up by 80 percent in 2014 compared to the same period in 2013 to total 2.2 MMT, reports WPI. Of this total, some 220,000 MT was barley and 1.1 MMT was composed of corn, sourced mainly from Argentina and Brazil.
Russia: Russia has instituted a series of informal actions to cut down on the country’s grain exports in order to stabilize domestic prices. According to Reuters. Railway loading has been cut significantly this week and as of now will be in place for an indefinite period of time. This action comes in tandem with stricter quality checks at grain processing and storage facilities as a means of preventing grain from leaving Russia.
Uganda: Uganda is predicted to export 300,000 MT of corn this year, which is up from last year’s 250,000 MT, according to WPI.
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting:Are world ocean freight markets getting better or worse? It all depends on your perspective. Those needing to purchase freight are surely happy to see rates dropping. The current rate structure is a pleasant surprise to those who were expecting to pay more due to an anticipated Q4 2014 market rally. That market rally did not happen and vessel owners and operators are feeling the effects. From an owner’s perspective, shipping economics are not looking positive.
Freight markets started out the year of 2014 with a Baltic BPI at 1780, Gulf to China Panamax rates at 57.00/MT and PNW rates to China at 28.50/MT.
Today the BPI is 907 (down 851 points or 49 percent). US Gulf physical rates to China are down $18.50/MT or 32 percent with PNW rates down by $8.00/MT or 28 percent from the beginning of the year. So, 2014 certainly was not the turnaround year many anticipated, and the first quarter of 2015 may not show any better results. So slow steaming will continue to be the order from the bridge and consolidation will likely be the news out of 2015.
The charts below represent January-December 2013 annual totals versus year-to-date 2014 container shipments to Thailand.