1. Chicago Board of Trade Market News
Outlook: Price action is anticipated to become more volatile next week as USDA publishes the important Prospective Plantings and Grain Stocks reports at 12:00 noon in Washington D.C. These reports are released each season at the end of March and the resulting price action is commonly aggressive. The price action of the various grain contracts normally move in the same direction but differ in intensity. This season the condition is somewhat unique because the composite of data is anticipated to be supportive for corn contracts and negative for the soy complex. Assuming how pronounced the data is to one extent or another, the prospect is for increased price volatility as it is virtually impossible for either these two crops to be entirely decoupled from the influence of the other during planting season.
Chicago futures contracts often react in accordance with the extent that the actual data released by USDA deviates from the average expectations of surveyed analysts. Dow Jones conducted a survey that shows the average estimate for U.S. corn acreage is 88.684 million acres (range 87-89.7). That is an expected decline of 1.9 million U.S. corn acres from last season’s 90.6 million acres. In conjunction, the total amount of U.S. corn stocks available on March 1 is estimated to be 7.628 billion bushels. That is 620 million bushels above last year’s level on March 1 of 7.008 billion bushels.
The average estimate for U.S. soybean acreage is 85.872 million acres (range 83-87.5). That is an expected increase of 2.17 million U.S. soybean acres from last season’s 83.7 million acres. In conjunction, the total amount of U.S. soybean stocks available on March 1 is estimated to be 1.341 billion bushels. That is 347 million bushels above last year’s level on March 1 of .994 billion bushels.
Either corn or soybeans is likely to assume the role of price leadership directly after the report, with the other and wheat assuming more passive roles. However, a consensus seems to be that corn at some point will assume the leadership role between the end of March and the first of June. Consequently, the release of bullish corn data on Tuesday is expected to result in corn contracts being bought sooner and if more bearish soybean data temporarily assumes the leadership role, then the anticipated result is that corn contracts will be bought later. Either way, the outlook is that there will be no substantial price weakness in corn contracts prior to the first of June.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: Warm, mostly dry weather over the West will contrast with chilly, wet conditions east of the Mississippi Valley. The greatest likelihood for drought-easing rainfall will be from Texas and the northern Delta into the Northeast. Spotty showers are expected over the Rockies and Northwest, though the light rain coupled with persistent warmth will not ease drought or aid spring runoff prospects. Mostly dry, warm weather is expected over California and the Southwest.
The NWS 10-day outlook calls for near- to above-normal temperatures nationwide, except for colder-than-normal conditions across the nation’s northeastern quadrant. Meanwhile, above-normal precipitation from the northern Plains and Upper Midwest into the Great Lakes and Northeast will contrast with drier-than-normal conditions in the south, particularly from California into the Four Corners and southern 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
Corn: Net sales of 435,000 MT for 2014/15 were down 13 percent from the previous week and 29 percent from the prior four-week average. Increases were reported for Japan (191,800 MT, including 122,700 MT switched from unknown destinations and decreases of 88,100 MT), Mexico (92,300 MT, including 23,000 MT switched from unknown destinations and decreases of 16,200 MT), Taiwan (87,200 MT, including 63,000 MT switched from unknown destinations), China (60,800 MT) and Saudi Arabia (54,100 MT, including 47,600 MT switched from unknown destinations). Decreases were reported for unknown destinations (336,000 MT). Net sales of 29,000 MT for 2015/16 were reported for Panama (16,900 MT), Mexico (10,700 MT) and Japan (1,400 MT). Exports of 1,065,900 MT were up 54 percent from the previous week and 4 percent from the prior four-week average. The primary destinations were Japan (310,500 MT), Mexico (295,700 MT, including 30,900 MT late reporting), Taiwan (80,000 MT), Colombia (68,900 MT), South Korea (67,900 MT), Saudi Arabia (54,100 MT) and Indonesia (32,600 MT, including 21,000 MT late reporting).Optional Origin Sales: For 2014/15, outstanding optional origin sales total 68,000 MT, all South Korea.
Barley: Net sales of 500 MT for 2014/15 were reported for Taiwan. Net sales of 100 MT for 2015/16 were reported for Taiwan. Exports of 1,300 MT were reported to Taiwan.
Sorghum: Net sales of 58,900 MT for 2014/15 were reported mainly for China. Net sales of 228,000 MT for 2015/16 were reported for unknown destinations. Exports of 287,600 MT were unchanged from the previous week, but up 31 percent from the prior four-week average. The destination was China.
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Domestic bulk rates for DDGS averaged up $2-3/MT to the Gulf of Mexico this past week while rail rates to the West Coast of the United States declined by an equivalent amount. The variability in containerized DDGS to Asian clients was much larger for the week ending March 27; the price of a 40-foot container to Yokohama, Japan averaged up $10/MT while the rate to the Philippines averaged down by $15/MT. An interesting coincidence is that the total increases and decreases in rates resulted in zero change for the weekly average of all containerized DDGS rates.
DDGS buyers may note that there are two offsetting influences for DDGS prices in the next three or four months. A bullish point of consideration is that increased volatility could drive corn futures contracts higher, into at least the first of June. (Please see the discussion in the preceding Outlook section). However, this action could be offset in part by a seasonal pattern for DDGS prices to weaken in relation to the price of corn going into the summer. Such a decline in the price of DDGS in relation to corn tends to occur because there is less domestic demand for DDGS as a forage replacement for beef cows as pasture conditions improve in the spring.
DDGS prices in the next three or four months will also be influenced by the level of U.S. ethanol production. If the present U.S. stocks of ethanol are drawn down by increasing summer driving demand, then a steady supply of ethanol and DDGS will be produced into summer, which in turn will give DDGS merchandisers more room to negotiate on price.
Lastly, logistical costs must be factored into the equation of the final delivered price for DDGS, and there was positive news this past week as the majority of competing ocean carriers have decided to wave or reduce the General Rate Increase (GRI) that was forecast to occur on the first of April. DDGS market participants will bring all such factors into consideration while awaiting the outcome of Tuesday’s data release in order to better define the most appropriate strategy.
Ethanol Comments: There was a slight increase in the average daily ethanol production rate to 953,000 barrels per day (bpd) for week ending March 20. This was modestly above the prior week’s production rate of 947,000 bpd. There was also an increase in total ethanol stocks to 21.3 million barrels, which is up 2.4 percent from the prior week’s level of 20.8 percent.
Until increased driving demand starts to pull down reserves, any additional growth in ethanol stocks could further dampen producer margins. The prospect of tightening ethanol margins seems to be implied by the narrowing of the differential between the spot price of corn and the co-products of ethanol and DDGS in three of the four reporting regions for the week ending Friday, March 27:
- Illinois differential is $1.93 per bushel, in comparison to $2.05 the prior week and $8.31 a year ago.
- Iowa differential is $1.65 per bushel, in comparison to $1.83 the prior week and $6.33 a year ago.
- Nebraska differential is $1.51 per bushel, in comparison to $1.68 the prior week and $5.98 a year ago.
- South Dakota differential is $1.90 per bushel, in comparison to $1.79 the prior week and $6.69 a year ago.
7. Country News
South Africa: The Crop Estimates Committee has maintained its prediction for a corn crop that could be the smallest in eight years, reports Bloomberg News. Farmers could harvest up to 9.67 MMT this year, which would be the smallest seen since 2007. While the forecast for yellow corn production was increased slightly to total 5.03 MMT (a 1.2 percent increase), prices for the grain have risen by 12 percent in recent weeks.
Ukraine: UkrAgroConsult has reduced its predictions for the 2015 corn harvest due to a smaller planting area, according to Reuters. Corn production could fall to 23 MMT, which is down from an earlier prediction of 25.9 MMT.
Zambia: Zambia may sell as much as 1/3 of its record corn harvest abroad, according to Bloomberg News. The 2014 harvest totaled 3.2 MMT and the agricultural ministry has indicated that it is looking to sell around 1 MMT. This bumper crop comes as South Africa and Botswana suffer from severe drought, while Malawi and Mozambique are enduring damaging floods.
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: There has not been much new action or movement in global ocean freight markets. Chartering activity was again rather thin with rates mostly unchanged for the week.
I have been attending a very interesting USSEC Asia Transportation conference in Singapore. After listening to various speakers and chatting with freight brokers here, I don’t find anyone who is particularly bullish about freight in the near future. The general consensus seems to be that it will still take another year or two to work through the vessel surplus and return to a better balance.
It is believed that Chinese demand for sorghum will continue strong for the foreseeable future and that
U.S. DDGS sales to China will remain robust. Rumor is that there are 17 DDGS vessels schedule to load out of the Mississippi River during the Jan.-Sept. period.
The charts below represent January-December 2014 annual totals versus year-to-date 2015 container shipments to the China.