Market Perspectives - March 13, 2015

1. Chicago Board of Trade Market News

Week in Review

Outlook: The March WASDE was released on Tuesday and it seemed to surprise some individuals in the market by reducing U.S. corn ending stocks for a fifth consecutive month, to 1.777 billion bushels. This additional 50 million bushel decline from the February estimate of 1.827 billion bushels reduced the stock-to-use ratio to 13 percent.

The 50 million bushel decrease in U.S. corn ending stocks for the current 2014/15 season was the result of an increase in the estimate for export sales. U.S. domestic demand was unchanged as a reduction in ethanol was offset by an increase in feed use. The result was another modest increase higher to the estimated U.S. farm prices of corn, projected to range from $3.50 to $3.90 per bushel for the current season.

Favorable prices for buyers have also created better-than-expected demand for both sorghum and barley. That consistent demand has resulted in the estimated price of sorghum increasing by 10 cents to a new trading range of $3.70 to $4.10 per bushel, even though the ending stocks for U.S. sorghum remains unchanged. Barley prices were also increased by 10 cents to a new projected range of $5.20 to $5.50 per bushel.

World demand for coarse grains is strong and the estimate for global consumption was increased by 2.7 MMT. At the same time, the estimate for global coarse grain production was reduced by 1.6 MMT. The composite of changing supply and demand factors resulted in global coarse grain ending stocks for the present 2014/15 season being reduced by 5 MMT, with 4.4 MMT of that production resulting from lower corn stocks. The outlook is that the existing solid global demand for coarse grains could further increase if market participants become increasingly concerned about production prospects for the approaching 2015/16 season. 

3. U.S. Weather/Crop Progress

U.S. Drought Monitor Weather Forecast: Through March 17, two low-pressure systems are forecast to impact the lower-48 states. One is forecast to move across the northern-tier, while another is forecast to bring significant rains (more than 3.0 inches) to the Gulf Coast and Lower Mississippi Valley. These two systems are forecast to phase over the Northeast, with precipitation spreading from west to east across that region. Some flow into the front range of the Rockies, with upper-level support, is likely to bring some spring snows to southwestern Colorado.

For the period of March 17 -21, below median precipitation is favored along the West Coast and from the Great Lakes to the Southeast, while an upper-level trough supports above median precipitation over the Southwest, most of the Rockies and portions of the southern and central Great Plains. 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
US Export inspections
USDA Inspections

Corn: Net sales of 418,000 MT for 2014/15 were down 50 percent from the previous week and 52 percent from the prior four-week average. Increases were reported for South Korea (281,000 MT, including 208,000 MT switched from unknown destinations and 60,000 MT switched from Japan), Colombia (136,300 MT, including 24,000 MT switched from unknown destinations), Mexico (92,000 MT, including 23,000 MT switched from unknown destinations and decreases of 13,200 MT), Japan (83,000 MT, including 45,900 MT switched from unknown destinations and decreases of 8,200 MT), Morocco (47,300 MT, switched from unknown destinations) and Chile (36,600 MT, switched from unknown destinations). Decreases were reported for unknown destinations (343,300 MT). Net sales of 96,400 MT for 2015/16 were reported for New Zealand (81,400 MT) and Japan (15,000 MT). Exports of 1,165,300 MT were down 16 percent from the previous week, but up 31 percent from the prior four-week average. The primary destinations were South Korea (344,100 MT), Mexico (279,600 MT), Japan (269,800 MT, including 31,900 MT late reporting), Colombia (117,400 MT), Morocco (47,400 MT), Chile (36,600 MT) and Costa Rica (27,000 MT). Optional Origin Sales: For 2014/15, outstanding optional origin sales total 68,000 MT, all South Korea. 

Barley: Net sales of 3,000 MT for 2014/15 were reported for Japan. Exports of 200 MT were reported to Taiwan.

Sorghum: Net sales of 218,000 MT for 2014/15 were up 20 percent from the previous week and 57 percent from the prior four-week average. Increases were for China (155,000 MT), unknown destinations (54,000 MT) and Japan (9,000 MT). Net sales of 215,000 MT for 2015/16 were reported for unknown destinations (162,000 MT) and China (53,000 MT). Exports of 59,300 MT--a marketing-year low--were down 81 percent from the previous week and 76 percent from the prior four-week average. The destination was China. 

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: There was a changing flow in buying activity of DDGS this past week. The market started off with strong inquires and there was a substantial amount of trading for the April-June time period. The fact of an approaching General Rate Increase (GRI) in freight costs presumably incentivized buyers with a desire to fix some more prices. However, merchandisers increased their asking prices by mid-week in response to the strong demand, which caused buyers to momentarily back away.

The increasing likelihood of weaker prices in the global soy complex may also have been an additional incentive for DDGS buyers to slow down their purchases. Buyers seem to recognize that a decline in meal prices could momentarily help weigh on corn futures contracts, and that in-turn could translate into better spot market prices for DDGS. Such thinking seems entirely logical. Of course, the development of a perceived opportunity is of limited values if there is only reaction once the event is gone. DDGS buyers can request that merchandisers inform them when specific price objectives are obtainable.

Ethanol Comments: USDA reduced the estimated amount of corn used for ethanol production during the current 2014/15 season by 50 million bushels from 5.25 to 5.20 billion bushels. The primary reason for this adjustment is apparently to harmonize with the recently released data about ethanol production in the Grain Crushing and Co-Products Production report. However, such action could be premature because this assumption of reduced production is not supported by the either the monthly December ethanol production number or the more current weekly ethanol production figures that run through February.

The most current weekly ethanol production figure is an average daily production rate of 944,000 barrels per day (bpd) for the week-ending March 6, 2015. That is actually a 13,000 bpd increase from the prior-week’s level. Total ethanol stocks also declined for the second week by 1.6 percent, to 21.2 million barrels. However, it is acknowledged that further increased consumption is necessary because stocks are a sizable 33.1 percent above the year-ago level of 15.9 million barrels. The need to utilize existing ethanol stocks is expected to keep a cap on ethanol producer margins for the time being. Nevertheless, the differential between the spot price of corn and the co-products of ethanol did improve for the week-ending Friday, March 13:

  • Illinois differential is $2.04 per bushel in comparison to $1.97 the prior week and $5.90 a year ago.
  • Iowa differential is $1.67 per bushel in comparison to $1.55 the prior week and $3.95 a year ago.
  • Nebraska differential is $1.57 per bushel in comparison to $1.41 the prior week and $3.69 a year ago.
  • South Dakota differential is $1.88 per bushel in comparison to $1.72 the prior week and $4.03 a year ago.

7. Country News

Argentina: Argentine farmers have threatened further protests if the government does not address their grievances, according to Reuters. Farmers have already suspended grain sales this week to protest frequently altered export quotas on corn that make it very difficult for them to plan their sales.

Brazil: Corn production could be hurt by dry weather this year, according to Reuters. Corn planting is currently underway but forecasts for April are predicting persistent dry weather.

Indonesia: Corn imports are expected to fall to 2.5 MMT this year, down from the 3.5 MMT Indonesia imported in 2014, reports Reuters. While ample global supplies and corresponding lower prices have led Indonesia to overbuy for January and February with more on the way in March, imports are expected to start falling off in April.

Ukraine: The Ukrainian recession could cause the country’s largest decline in corn since 2005 as increasingly high interest rates make borrowing too expensive for farmers, reports Bloomberg News. Corn production may fall by 19 percent to 23 MMT as farmers are unable to purchase fertilizers, pesticides or high yield seed. The Ukrainian government recently raised interest rates to 30 percent.



8. Ocean Freight Markets and Spread

9. Ocean Freight Comments

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: Global ocean freight markets attempted to continue their upward movement this week, but seemed to have topped out at week’s end. Despite slightly higher values in the Baltic Indices, the physical markets appear to be mostly unchanged from last week’s levels. It is very difficult to muster a substantial price rally in a market that remains oversupplied with vessels. It is particularly disconcerting to read the headlines in some of the vessel news wires where they are once again asking the question- “Is now the time to buy new vessels?” When will they ever learn? Will it ever stop, or will the greed factor condemn this market for years to come?

I have heard U.S. traders discussing the possibility of French corn being imported into the U.S. East Coast due to the weak Euro. I’m not sure that this is going to actually happen, but would guess the freight rate to be close to $14.00/MT or so.

Below is a recent history of freight values for Capesize vessels of iron ore from Western Australia to South China:

The charts below represent January-December 2014 annual totals versus year-to-date 2015 container shipments to the Vietnam.

Vietnam 2015
Vietnam 2014
International Freight Rates

10. Interest Rates

Interest Rates