Market Perspectives October 15, 2015

1. Chicago Board of Trade Market News

Week in Review

Outlook: Corn futures have declined since the release of USDA data last Friday projecting that the average yield will increase by a half bushel per acre to 168 bu. Less attention was seemingly paid to that fact that the estimate for harvested area was reduced by 500,000 acres to a lower total of 80.7 million acres. The reduction in harvested acres more than offset the increase in average yield and that caused total projected corn production to decline slightly from 13.585 to 13.555 billion bushels. Thus, this week’s setback in prices is not because of increased production but rather because disappointed bullish traders lacked sufficient justification to fuel additional upside momentum during harvest. Their selling and limited hedge activity is the cause of lower corn contracts; however, note that the decline is occurring in an orderly manner because there are a substantial number of traders who desire to buy corn at lower levels. The competitive buying among those traders will increase as prices move lower until a point is reached that the number of buyers outnumbers sellers. It is at that point that the majority of global buyers wish to make purchases, but buying at the low is always easier said than done.

The current 2015/16 crop marketing year for U.S. corn began on September 1 and this season’s pace of export sales has been slower than normal. For example, most recent data shows that only about 23 percent of the annual estimate for total exports has been sold so far when the more recent rate has averaged closer to 45 percent sold by this time. The current slower sales pace is not because lower prices have diminished demand, but because of the common hope among buyers to purchase at reduced prices, preferably at the bottom. The outlook is that once a bottom in prices is more clearly defined, then that pent-up demand will enter the market with full force. It is entirely feasible that before the calendar year is over there will be increasing announcements of large corn exports, and that news will likely facilitate more purchasing.

2. CBOT Corn Futures

December Corn Futures

CBOT Table

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

U.S. Crop Condition

U.S. Drought Monitor Weather Forecast: For the upcoming 5-day period (October 15-19), a rather dry weather pattern should exist east of the Rockies, with only light to moderate precipitation expected in the Great Lakes region and New England, and extreme southern Florida. In the West, however, widespread and heavy rainfall (1-3 inches) is possible in the Southwest (southeast California, Nevada, Arizona, Utah, western New Mexico, southwest Colorado) and western Washington, with lighter amounts in Idaho, Oregon, and western Wyoming and Montana. Temperatures should average below normal in the eastern third of the Nation, with much above normal readings from the Plains westward.

For the ensuing 5 days (October 20-24), the odds favor above-median precipitation throughout much of the middle third of the U.S., in the Northwest and Southeast, with a tilt toward sub-median precipitation in California and along the mid-Atlantic and New England coasts. Above-normal temperatures are favored in much of the lower 48 States, with only near-normal readings expected in the Carolinas and New Mexico.

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 and Exports
U.S. Export Inspections
USDA Grain Inspections for Export

The following text reflects data from the week ending October 1, 2015.

Corn: Net sales of 519,700 MT for 2015/2016 were down 31 percent from the previous week. Increases reported for Mexico (338,300 MT), Panama (52,200 MT), Bangladesh (44,000 MT, including 40,000 MT switched from unknown destinations), Jamaica (43,000 MT), and Japan (37,200 MT, including 10,400 MT switched from unknown destinations and decreases of 24,000 MT), were partially offset by decreases for unknown destinations (50,300 MT) and Taiwan (1,800 MT). Net sales reductions of 53,100 MT for 2016/2017 were reported for Panama (51,900 MT) and Honduras (1,200 MT). Exports of 489,900 MT were down 40 percent from the previous week. The primary destinations were Mexico (184,100 MT), Japan (120,900 MT), Bangladesh (44,000 MT), Colombia (31,300 MT), Guatemala (31,200 MT), Panama (21,100 MT), and El Salvador (17,000 MT).

Barley: Net sales of 500 MT for 2015/2016 were reported for Japan (300 MT) and South Korea (200 MT). There were no exports reported during the week.

Sorghum: Net sales of 4,000 MT for 2015/2016 resulted as increases for Venezuela (49,400 MT, including 50,000 MT switched from China and decreases of 600 MT), China (6,600 MT), Indonesia (600 MT), and Japan (400 MT), were partially offset by decreases for unknown destinations (53,000 MT). Exports of 353,000 MT were up 24 percent from the previous week and 67 percent from the prior-4 week average. The destinations were China (294,600 MT), Venezuela (49,400 MT), Japan (4,500 MT), and Mexico (4,400 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: Buyers of DDGS seem to recognize that it is common for grain prices to stabilize once harvest is more than 50 percent complete. Since that point in time is near, increasing attention is being paid by market participants to chart patterns in order to create purchasing strategies. For example, DDGS merchandisers report that Chinese buyers are slowly returning to the market and seeking DDGS offers for prices in the first quarter of calendar year 2016. Other Asian purchasers of DDGS seem anxious to stay ahead of this potentially significant competition, and there have been sales to firms from Vietnam, Korea and Thailand at the recent low prices.

Domestic purchases of DDGS normally increase for the feeding of cattle as cooler weather approaches, but feedlots often prefer to buy immediate needs in the nearby spot market. The lack of extended coverage makes it much more difficult for these domestic end-users to take advantage of seasonal lows. The result is that their current costs for feed are often less but their total costs for the season are more.

Ethanol Comments: USDA’s October estimate of corn used in ethanol and co-product production was unchanged from the September estimate of 5.250 billion bushels. This projection implies stable grow in demand as total corn use for ethanol increases from 5.124 billion bushels in the 2013/14 season and 5.207 billion bushels in 2014/15. The assumption makes sense when considering the fact that the price of crude oil appears to be stabilizing into a horizontal trading range and at levels that will encourage strong consumption of gasoline. However, the following data also implies that competition is keeping ethanol stocks ample, and that may cause margins to remain thin for ethanol producers.

Total U.S. ethanol stocks increased slightly for week ending October 9, 2015 to 19 million barrels. This is slightly above the week-ago level of 18.8 million barrels and 3.3 percent above the year-ago level of 18.4 million barrels. Maintaining these stocks was a steady average daily production rate of 949,000 barrels per day (bpd). This rate of production is basically unchanged from the prior week’s average of 950,000 bpd. The result was a limited but consistent decline in the reported differential between the price of corn and co-products across the U.S. Corn Belt. The following data shows differentials in the four regions of the Corn Belt for the week ending October 9, 2015: 

  • Illinois differential is $1.64 per bushel, in comparison to $1.72 the prior week and $2.06 a year ago.
  • Iowa differential is $1.47 per bushel, in comparison to $1.54 the prior week and $1.94 a year ago.
  • Nebraska differential is $1.62 per bushel, in comparison to $1.70 the prior week and $1.72 a year ago.
  • South Dakota differential is $1.71 per bushel, in comparison to $1.74 the prior week and $1.97 a year ago.

7. Country News

Europe: The EU harvested 28.5 MMT of barley this year, down just 4 percent from last year’s huge crop, of which 9 MMT is expected to reach malting quality, down around 5 percent from a year ago. As a result prices are expected to stay weak. (Reuters)

Europe: European farmers will not be growing Syngenta’s newest corn seed technology as the company announced that it has withdrawn its applications for their approval by Brussels. In short, the company sees no pathway forward for commercially using genetically engineered corn in Europe. (Bloomberg)

Russia: Jack Watts of the UK’s Agriculture and Horticulture Development Board says that if grain prices rise, the ruble stays weak and Moscow keeps its tax on wheat exports, Russian farmers will shift to plant corn instead. (Dow Jones)

Vietnam: Lacking adequate fueling stations and support from the government, five of seven ethanol production plants have been forced to close. Kien Chinh of ethanol maker Tung Lam says the effort now is to get farmers to grow sweet potatoes as feedstock to produce ethanol. (Vietnam News Service)

8. Ocean Freight Markets and Spread

Bulk Freight Indices for HSS

9. Ocean Freight Comments

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: I must admit that this is not a very exciting global freight market. But when there is nowhere to go, there’s nowhere to go. I guess we can say things are just steaming in circles. We go up or down 1-4 percent one week and then take it all back the next. Month over month there is not much progress in either direction. This is good news for freight buyers who continue to get good deals and it continues to be a big frustration for vessel owners. I do not see anything on the horizon that will cause a big change. The North American soybean harvest is now a little over 62 percent complete with the corn harvest at 42-plus percent. U.S export sales, however, are lagging and U.S. farmers are not very willing sellers at current prices. U.S. barge and rail freight markets are indicating that there is no shortage of transportation equipment available, nor any big logistical snarls. Grain buyers, it’s all here and available at good values – come and get it!

Baltic-Panamax Dry-Bulk Indices
Below is a recent history of freight values for Capesize vessels of iron ore from Western Australia to China:
Capesize Iron Ore
U.S.-Asia Market Spreads

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

Container Shipments 1
Container Shipments 2
International Freight Rates for Feed Grains

10. Interest Rates

Interest Rates