1. Chicago Board of Trade Market News
Outlook: Chicago corn futures are described as “featureless” and trading is characterized as unnecessary, and yet March corn was able to gain 7 cents during the week of January 18, 2016 and is holding above the 50-day moving average of $3.67/bushel. One bullish piece is the dry weather in parts of Argentina’s corn production area. Another is the fact that sorghum imports by China this past November were not as shabby as feared. Note that sorghum remains priced lower than corn and has multiple points of demand. Still, there are ample fundamentals going in the other direction.
For example, Ukraine and Argentina continue to duke it out in the feed wheat market. Argentina typically sells high quality wheat to Brazil but with a large volume of lower quality product, it has made rare sales to South Korea and Vietnam. In China, government policy has improved corn utilization for starch, but that hasn’t translated into any improvement in downstream demand. As a result, surplus inventories have increased. Even the upcoming Chinese New Year does not seem to improve the demand outlook.
However, it was the selloff in soybeans that ultimately dragged corn down in the futures market.
Back in the U.S., none of this seems to stymie corn farmers who are said to be planning on more acres planted this spring despite the low prices. They are encouraged by the above average yields of the past two years, and an overall global supply situation that is getting nudged lower.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: Over the next 5-7 days (valid through February 2), temperatures are expected to run well above normal (6-12 degrees or more) for virtually all locales east of the Rocky Mountains. Parts of the Pacific NW and Great Basin can expect slightly cooler-than-normal temperatures over the same period. As for precipitation, the recent favorable pattern remains as chances for good precipitation are expected across a good portion of the West, particularly the west coast along the coastal ranges, Sierra Nevada and Cascade Ranges. Central Florida is also looking likely to have good rains over this period. The country’s mid-section looks to be dry, all in all.
The 6-10 day outlooks (February 2-6, 2016) are calling for better chances of below-normal temperatures across the middle two-thirds of the country with above-normal readings likely along both coasts. Precipitation prospects look best in the Pacific NW, central Plains, Midwest, Great Lakes, Florida and the Northeast. Below-normal precipitation is more likely in southern California, the Desert Southwest, most of Texas and the lower Mississippi Valley and Delta.
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
Please note: Due to the weather-related temporary closure of the Federal government earlier this week, USDA’s next Export Sales report will be released on Friday, January 29, 2016. The table (see above) and the following text reflect the week of January 14, 2016.
Corn: Net sales of 1,157,700 MT for 2015/2016 were up 73 percent from the previous week and 91 percent from the prior 4-week average. Increases were reported for Mexico (466,900 MT), unknown destinations (255,600 MT), Saudi Arabia (146,500 MT, including 70,000 MT switched from unknown destinations), South Korea (138,000 MT), Japan (61,200 MT), and Colombia (59,600 MT). Net sales of 189,000 MT for 2016/2017 were reported for Mexico (180,000 MT) and Japan (9,000 MT). Exports of 571,600 MT were down 10 percent from the previous week and 4 percent from the prior 4-week average. The primary destinations were Mexico (298,400 MT), Japan (125,100 MT), Saudi Arabia (76,500 MT), Colombia (22,900 MT), El Salvador (21,100 MT), Peru (11,000 MT), and Taiwan (6,600 MT).
Optional Origin Sales: For 2015/2016, 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 210,700 MT for 2015/2016 were reported for unknown destinations (162,500 MT), China (48,200 MT, including 48,800 MT switched from unknown destinations and decreases of 700 MT), and Mexico (100 MT). Exports of 105,700 MT were down 61 percent from the previous week and 46 percent from prior 4-week average. The destinations were China (103,000 MT, including 53,300 MT late reporting) and Mexico (2,700 MT).
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: As noted previously, nearby slots of DDGS for export are in tight supply. Some buyers are apparently hoping that China will impose import penalties, which can occur no earlier than March 20, 2016, and that this will soften prices thereafter. However, DDGS prices are also pressured by the decline in grind (see ethanol section) and tighter margins. The current premium over corn may be justified but the gamble is when and if this declines.
Traditionally, there has been a price decline beginning in March. However, this time around the trade reports there has even been a slight increase in values for shipments this April. Moreover, the cautionary tale is years like 2010/11 when prices continued to rise on supply concerns, and 2011/12 when DDGS prices climbed 36 percent from January to July.
Prices increased week-to-week for container shipments to certain Asian destinations by as much as $6. Domestic rail-delivered rates declined into April by as much as $3.
Ethanol Comments: Last week’s ethanol production fell 2.2 percent (21,000 barrels/day) from the prior week. This is the second weekly decline in a row. Encouragingly, ethanol stocks also declined by about 2.3 percent, but they were still 4 percent higher than last year. Export demand remains very hard to find; however, there are negligible imports.
Meanwhile, the margin between the corn price and the value of ethanol and co-products fell in Iowa to below $1.00.
- Illinois differential is $1.10 per bushel, in comparison to $1.13 the prior week and $1.63 a year ago.
- Iowa differential is $0.98 per bushel, in comparison to $1.02 the prior week and $1.32 a year ago.
- Nebraska differential is $1.17 per bushel, in comparison to $1.26 the prior week and $1.26 a year ago.
- South Dakota differential is $1.19 per bushel, in comparison to $1.20 the prior week and $1.60 a year ago.
7. Country News
China: The China National Grain and Oils Information Center (CNGOIC) reports that companies have ordered more than 20 cargoes (1.2 MMT) of corn, mostly from Ukraine, for shipment in the first quarter of the year. (ThomsonReuters)
India: The attempt to import corn after 16 years appears successful as a 225,000 MT contract was awarded to Daewoo. (WPI)
Iraq: FAO reports a 10 percent decline in barley production, but when compared to the five-year average, production is up five percent. (FAO)
Russia: Deputy Minister of Agriculture Yevgeniy Gromyko announced that the ministry is considering possible introduction of an export duty for corn and barley.
South Africa: Grain SA reports that the country has had the least amount of rain since 1904, and while South Africa’s Crop Estimates Committee believes that corn production will hit 7.44 MMT, many private analysts say it will be closer to 6.1 MMT. (Bloomberg)
Zimbabwe: The government secured a $200 million line of credit from the Afreximbank for the purchase of corn, which could amount to 700 KMT. (Reuters)
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: The past two weeks has proven how difficult it is to predict a market bottom. It is amazing that hire rates have continued to slide when they are this far below operating cost. Capesize vessels have been trading at near $3,000/day and say they need close to $6,000/day to break even. One shipping analyst estimates that the Capesize vessel fleet now exceeds cargo demand by 50 percent. Panamax vessel rates are in a similar situation, trading in the $2,500 $3,000/day range.
Market economics are now forcing vessel operators to drop anchor and layup rather than run. This will remove capacity but not eliminate it. The Baltic Dry Index is now 325 and the Panamax Index sits at just 293. Physical dry-bulk grain rates seem to have bottomed/stabilized; maybe further bloodletting can be avoided? Seminar participants in Amman, Jordan last week asked me how they can know what vessel owners are strong and who is in financial danger. In truth every owner is in danger – it is just a matter of degree. So be careful.
The charts below represent year-to-date 2016 versus January-December 2015 annual totals for container shipments to Indonesia.