1. Chicago Board of Trade Market News
Outlook: March corn futures have had a net gain of a whole penny over the past five days of trading. The funds have been approaching record short positions in corn and wheat and USDA’s WASDE report was not expected to alter the bearish mood – until it did. USDA reported lower harvested acres, a lower national yield and consequently lower 2015 corn production than in its December report. The reductions were small, but if anything they were expected to go the other way if at all. Still, the close on Tuesday at 5 cents higher was off the day’s highs of being up 12-13 cents. Moreover, open interest has grown at a greater pace than short covering, indicating that the mood is still bearish.
A large 4 million bushel sale of corn to Mexico helped close out the week. However, strong competition in the corn export market from South America and Ukraine will continue, making U.S. export sales hard fought. The market itself grew tighter as USDA reduced its projection for global corn consumption by 3 MMT.
China holds more than half of the world’s 208.9 MMT of corn ending stocks for 2015/16 and its domestic corn prices had been holding steady, but they fell last week to an average of $312.30/MT.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: Over the next 5-7 days, an active pattern will bring precipitation to much of the Pacific Northwest and northern California, which could see as much as 8 inches of precipitation. Much of the area from the Mississippi Valley to the east also looks favorable for precipitation, with the greatest amounts along the Gulf Coast and Eastern Seaboard. Temperatures will be normal to slightly above normal over the West and East, cooler than normal over the High Plains, and above normal over the Southern Plains.
The 6-10 day outlooks show that the best chances for above normal temperatures are over the area west of the Rocky Mountains with the greatest chances over the West Coast. The best chances for below normal temperatures are over the Eastern Seaboard. The best opportunity for above normal precipitation is over much of California and into the Great Basin. Increased chances of above normal precipitation can also be anticipated over much of the Plains and into the Southeast. The greatest odds of below normal precipitation are anticipated over south Texas and the Great Lakes region into northern New England.
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 669,200 MT for 2015/2016 were up noticeably from the previous week and 14 percent from the prior 4-week average. Increases were reported for Japan (310,200 MT, including 89,000 MT switched from unknown destinations and decreases of 7,200 MT), Mexico (145,500 MT), Colombia (119,000 MT, including 75,000 MT switched from unknown destinations and decreases of 18,500 MT), El Salvador (51,900 MT, including 11,700 MT switched from unknown destinations), Taiwan (24,000 MT), and Guatemala (23,500 MT, including 21,000 MT switched from unknown destinations). Reductions were reported for unknown destinations (33,700 MT), Costa Rica (14,000 MT), and the French West Indies (6,300 MT). Exports of 638,200 MT were up 78 percent from the previous week and 14 percent from the prior 4-week average. The primary destinations were Mexico (214,400 MT), Japan (151,600 MT), Colombia (143,500 MT), Peru (56,700 MT), Cuba (25,000 MT), and Guatemala (22,000 MT).
Optional Origin Sales: For 2015/2016, changes of destination were reported totaling 58,000 MT from unknown destinations to Japan. Options were exercised to export 58,000 MT to Japan from other than the United States. The current outstanding balance totals 398,000 MT, all unknown destinations.
Barley: There were no sales reported during the week. Exports of 200 MT were reported to Taiwan.
Sorghum: Net sales of 17,100 MT for 2015/2016 resulted as increases for China (49,100 MT, including 50,800 MT switched from unknown destinations and decreases of 8,600 MT), Japan (18,400 MT), and Mexico (500 MT), were partially offset by reductions for unknown destinations (51,000 MT). Exports of 270,900 MT were up noticeably from the previous week and up 91 percent from prior 4-week average. The destinations were China (261,100 MT, including 49,600 MT late reporting), Japan (8,400 MT), and Mexico (1,400 MT).
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: As expected, there have been no immediate negative effects from China MOFCOM’s announced anti-dumping/countervailing duty investigation into U.S. DDGS sales. Sales to China had already slowed at the same time demand from other Asian countries (Vietnam, Korea, Thailand, Taiwan) continues. In fact, prices this past week incurred some of the smallest changes in several weeks, basically unchanged for February delivery and down just 1 percent for March delivery. 40-foot containers FOB the Gulf for February were at $181, versus $178 a week ago, and February shipments to Taiwan or the Philippines were up a dollar each to $209 and $224, respectively. Containers shipped to Malaysia next month were up $6 from a week ago to $228.
Meanwhile, the DDGS supply is actually likely to grow tighter and more precious. This is because ethanol producers usually slow down their production between now and spring due to these being lower gasoline consumption months.
Ethanol Comments: The U.S. grind for ethanol continues to be the one bullish factor in the market. Last week’s ethanol production average of 1,003 thousand barrels per day was once more above the average needed to meet USDA’s corn-for-ethanol forecast. The caution is that the production is adding to stocks, which are above last year’s level at this time. The correction that is likely to occur is a slowdown in ethanol production. Historically, ethanol producers have reduced their output during this time of year because gasoline demand – and thus blending requirements – tends to drop off in the winter until warmer weather arrives in spring.
Overall, the U.S. Energy Information Agency (EIA) released its updated forecast calling for production in both 2016 and 2017 to average 970 thousand barrels a day, which is 6 thousand barrels per day greater than in 2015.
Meanwhile, ethanol production margin remains slim and the blender margin negative (note: due to a technical error ethanol margin data for Illinois was unavailable at the time of this report’s publication).
- Iowa differential is $1.12 per bushel, in comparison to $1.29 the prior week and $1.52 a year ago.
- Nebraska differential is $1.36 per bushel, in comparison to $1.44 the prior week and $1.53 a year ago.
- South Dakota differential is $1.33 per bushel, in comparison to $1.44 the prior week and $1.79 a year ago.
7. Country News
Brazil: The estimate for corn production this season was raised from 82.04 MMT to 82.3 MMT. (DowJones)
India: Fifteen separate bids were received to supply 260 KMT of non-GMO corn with prices ranging from $192.99-$245/ton. The state-run PEC will tender for an additional 200 KMT with deliveries expected by the end of March.
Russia: Rusagro says that it shipped 10 KMT of corn to Japan. The country is set to become the world’s largest wheat exporter just as the government has proposed an export tax in order to keep enough domestically for affordable animal feed. (Bloomberg/Reuters)
Sweden: Ethanol imports are up sharply, boosted by the purchasing power of a strong krona. (Agra-net)
South Africa: Yellow corn hit its highest price ($222/MT) since 1996 and white corn ($295/MT) is near its historical record. The country needs $1.2 billion to import enough corn to meet demand. There may be contracts with South America to supply white corn later in this marketing year. (Bloomberg)
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: How much lower can rates go? Everyone keeps asking that question and every time it seems we have hit bottom, things go a little lower. That is the situation as we move through the first month of 2016. The Baltic Panamax index is now at a historic low of 399. I have keep records on this since 2002 and have never seen it so low. So, “are we there yet?” I do not think we have much room to go lower unless we can go to zero. Vessel owners have been selling ships at highly discounted rates to help with cash flow and others are just dropping anchor and sitting as rates have fallen below operating costs. So, we must be scrapping bottom.
But even if this is true, there does not seem to be much reason for a meaningful market turnaround. It is going to be a very difficult year for the shipping industry. Vessel owners must be thinking about jumping into the ocean while at sea?
PS: You may want to frame this edition of the Transportation Report as it could turn out to be the low point in global ocean freight rates in your professional lifetime.
The charts below represent year-to-date 2016 versus January-December 2015 annual totals for container shipments to China.