Market Perspectives - July 17, 2015

1. Chicago Board of Trade Market News

Week in Review

Outlook: A continued rally of the December corn contract beyond $4.50 per bushel is dependent upon further substantial declines in the average crop condition rating for U.S. corn, and that did not occur. Rather, Monday’s data showed no change in the combined rating of good to excellent from the prior week for either U.S. corn and sorghum. Weather prospects also were forecast to improve in most of the global feed grain producing regions, except France. Such factors reduced prospects for still higher prices and that naturally diminished the incentive of bullish traders to continue buying. In opposite, traders holding short positions were more emboldened by the facts that the United States’ corn crop is poised to go into pollination without any real threatening weather and U.S. farmers need to finish cleaning out their bins. As well, South American traders are increasingly anxious to take advantage of the recent rally in global feed grain prices. Therefore the short-term outlook is that this week’s sell-off in corn contracts could last into the first of August.

Increasing demand could eventually turn corn contract prices higher, but without the development of a more substantial threat to production, that is expected to occur from lower price levels and after bottoming action has become more definitive on chart patterns. Such a demand driven rally occurred twenty years ago in 1995, following the record breaking harvest in 1994. Market conditions in the 2014-2015 time period have similarities. 

3. U.S. Weather/Crop Progress

Crop Conditions

U.S. Drought Monitor Weather Forecast: The NWS WPC seven-day Quantitative Precipitation Forecast (QPF) calls for dry conditions across an area extending from northern California to the Pacific Northwest, while portions of the Southwest are predicted to receive monsoonal moisture with forecast accumulations in the 1-3 inch range – primarily centered over Arizona. Moderate precipitation accumulations (2-3 inches) are forecasted for eastern portions of the central and northern Plains while the Midwest, Northeast and parts of the Southeast are expected to receive light-to-moderate accumulations (1-3 inches).

The 10-day outlooks call for a high probability of above-normal temperatures along the West Coast while northern portions of the Southwest and Intermountain West are expected to experience below-normal temperatures. Meanwhile, the eastern half of the country has a high probability of above-average temperatures, especially in the Southeast. Out West, there’s a high probability of above-average precipitation forecasted for western portions of the Southwest, southern California, Intermountain West and eastern portions of the Pacific Northwest. Likewise, the Midwest and Northeast have a high probability of above-average precipitation while Texas and the Southern Plains are forecasted to be dry. 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 331,100 MT for delivery in 2014/15--a marketing-year low--were down 38 percent from the previous week and 41 percent from the prior four-week average. Increases were reported for Saudi Arabia (98,900 MT, including 100,000 MT switched from unknown destinations and decreases of 1,100 MT), South Korea (73,300 MT, including 63,000 MT switched from unknown destinations), Japan (67,300 MT), Mexico (61,900 MT, including 30,000 MT switched from unknown destinations and decreases of 2,700 MT), China (60,000 MT, including 55,000 MT switched from unknown destinations) and Panama (48,400 MT, including 17,800 MT switched from unknown destinations). Decreases were reported for unknown destinations (138,500 MT), Canada (38,700 MT), Colombia (1,500 MT) and the Dominican Republic (1,400 MT). Net sales of 325,100 MT for 2015/16 were reported for Mexico (223,500 MT), Japan (61,000 MT), unknown destinations (27,700 MT), Taiwan (5,400 MT), El Salvador (5,000 MT) and Nicaragua (2,500 MT). Exports of 1,131,700 MT were up 17 percent from the previous week and 9 percent from the prior four-week average. The primary destinations were Japan (236,100 MT), Mexico (234,100 MT), South Korea (153,800 MT), Saudi Arabia (98,900 MT), Taiwan (73,800 MT) and China (62,100 MT). Optional Origin Sales: For 2014/15, outstanding optional origin sales total 52,500 MT, all Egypt.

 Barley: Net sales reductions of 100 MT for 2015/16 were down noticeably from the previous week, all Canada. Exports of 400 MT were down 61 percent from the previous week. The destinations were Taiwan (300 MT) and South Korea (100 MT).

Sorghum: Net sales of 100 MT for 2014/15 resulted as increases for China (24,100 MT, including 24,000 MT switched from unknown destinations and decreases of 900 MT), were partially offset by decreases for unknown destinations (24,000 MT). Exports of 75,200 MT were up noticeably from the previous week and from the prior four-week average. The destination was China.


6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: DDGS pricing this past week was somewhat odd in the fact that some prices to the same destination increased one month and decreased another. This altering price action indicated the significant influence that factors such as storage, unsold inventory and fluctuating logistical rates can have on offers being extended by DDGS merchandisers. Those merchandisers seem to have a strong appreciation for enough time to plan for the future, but the majority of those individuals also seem to realize that abundant notice is not something that DDGS buyers can always offer. 

The need for DDGS merchandisers to sometimes plan ahead and estimate future demand without any firm agreements gives them a strong interest in any opportunity to sell sizable amounts of DDGS over prolonged periods of time. Naturally, the best offers are extended to the largest potential customers, and that fact was evident this past week as substantial reductions were presented to Chinese buyers of containerized DDGS. Alternatively, those foreign buyers who consistently purchase in only small amounts usually saw rates rise to varying degrees. However, they may also be able to obtain better rates next week on DDGS purchases if corn futures continue to drift lower for the next week to two.  

Ethanol Comments: The decline in crude oil futures contracts this week could be a further indicator that increased summer driving demand has peaked and will slow as Americans travel less and prepare for the return of the school year. If so, margins for ethanol producers are unlikely to improve by way of better demand. Improved margins for ethanol facilities will instead have to come from reduced input costs, primarily corn. That prospect has recently increased, and the price of corn could still have further downside. However, that downside in corn prices is not expected to stretch far into 2015 as discussed in the preceding outlook section.

Relatively thin margins are not incentivizing ethanol producers to increase production, and the average daily rate declined slightly during the week ending July 10, 2015 to 984,000 barrels per day (bpd) from the prior level of 987,000 bpd. Total ethanol stocks did decline during that same period, but only marginally to 19.7 million barrel from the prior level of 19.8 million barrels. A somewhat favorable note is that current stocks are only 10 percent above the year-ago level, but additional declines seem necessary to obtain any rebound in ethanol producer margins.

The differential between the cost of corn and the co-products continued to show weakness in three of the four primary locations across the Corn Belt for the week ending July 17, 2015: 

  • Illinois differential is $1.53 per bushel, in comparison to $1.62 the prior week and $3.49 a year ago.
  • Iowa differential is $1.56 per bushel, in comparison to $1.59 the prior week and $3.26 a year ago.
  • Nebraska differential is $1.20 per bushel, in comparison to $1.28 the prior week and $3.19 a year ago.
  • South Dakota differential is $1.99 per bushel, in comparison to $1.87 the prior week and $3.59 a year ago.


7. Country News

Brazil: Fertilizer sales in Brazil have fallen 9.6 percent in the first half of 2015 as demand from corn farmers has dropped due to high interest rates, the low price of corn on the global markets and increased fertilizer costs associated with a stronger dollar, according to Reuters. Fertilizer deliveries through June 2015 totaled 11.71 MMT, which is down from 12.95 MMT for the same time in 2014. Prior to this year, fertilizer sales had been hitting record consecutive highs. This lower demand could potentially be indicative of reduced corn acreage in 2015/16.

India: Unexpected dry weather in the corn-producing regions of central, southern and western India has put the crops planted during the recent monsoon season at risk, reports Reuters. The threat of reduced yields has caused food prices to soar in the world’s second most populous country. Heavier-than-anticipated rains in early June encouraged an initial rush to plant 44.5 million hectares of cropland by July 17, which is 62 percent higher than the planted area at the same time in 2014. However, due to the development of dry conditions planting has largely stopped. Weather forecasts have indicated that India could suffer its first drought since 2009 due to the El Niño weather pattern.

Iran: The loosening of sanctions against Iran could bring about a large growth in disposable income and has the potential to cause a major increase in demand for corn, according to Reuters. 

8. Ocean Freight Markets and Spread

9. Ocean Freight Comments

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: Just when one thinks the market is sleeping and going nowhere, it wakes up. I guess this is what keeps things interesting?

The Baltic Dry-Bulk, and particularly the Panamax and Supramax sectors have put together a pretty good rally over the past seven weeks. During this time period the BPI has more than doubled (from 522 on June 1 to 1162 today) and now the physical markets are following the trend.

Grain freight demand from South America has definitely picked up. It feels like some East Coast South

American (ESCA) freight buyers, maybe too many, were caught short and forced to enter the market all at once. ECSA and the North Atlantic have been the primary market drivers. The Atlantic is still the leader with the Pacific routes following at a slower pace. The fall in iron ore prices to $40.00/MT has also assisted in creating demand.

According to Allendale Inc., U.S. FOB vessel corn is priced $29/MT over Brazil right now and it would take $10 - $15/MT to ship it up to the U.S. East Coast. This is something the market will be watching as well as the price of feed wheat.

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

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

philippines 2015
philippines 2014
International Freight Rates

10. Interest Rates

Interest Rates