Market Perspectives April 28, 2016

1. Chicago Board of Trade Market News

Week in Review

Outlook: The funds last week reduced their net long position in corn by 50 percent. The surprise rally brought a glimmer of profitability to some farmers but the thinking then turned to the likelihood of a major correction. There was somewhat of a correction but many were stumped when big buying resumed on Tuesday. There were rumors of an Asian (China) fund that was defending its long position.

Certainly a weak dollar makes commodities more attractive. It also did not hurt that weekly U.S. corn export sales were once again significant (85.1 million bushels; 2.16 MMT). On the bearish side, U.S. corn planting has been robust, with a national average of 30 percent in the ground but over 40 percent planted in the two largest production states, Iowa and Illinois. And word that the U.S. economy had been slower in the first quarter than previously thought sent equities lower. But, rumor that some outside money is betting on La Niña and the weather is definitely a risky proposition.

Tomorrow (Friday) is first notice day against May futures and there may be some deliveries, but not a lot. Meanwhile, some expect a seasonal downturn in prices early in the month.

2. CBOT Corn Futures

May Corn Futures

CBOT Graph

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

U.S. Crop Planting Progress

U.S. Drought Monitor Weather Forecast: In the two days since the issuance of the April 26 USDM, additional heavy rain has fallen across the drought and abnormally dry areas of the central Plains, and precipitation of varying amounts has occurred over the drought and abnormally dry areas of other parts of the CONUS. During April 28-May 2, a large upper-level weather system and associated frontal systems are forecast to bring moderate precipitation totals of 0.5 to 2.0 inches, with locally higher amounts, to parts of the intermountain basin to central and northern Rockies, much of the Great Plains to Mississippi and Ohio Valleys, and the mid-Atlantic to Southeast. Less than half an inch is predicted for the Far West, southern portions of the Southwest, northern Great Lakes, New England, and central to southern Florida. The upper-level low is expected to keep temperatures below average for much of the country, with above-normal temperatures limited to the Far West and Southeast to southern Plains.

The odds favor above-normal precipitation across the Southwest, Gulf of Mexico and Atlantic coasts during May 3-7, 2016. There are enhanced chances for subnormal precipitation across the Pacific Northwest to western Great Lakes and much of the CONUS from the Rockies to Appalachians. Enhanced chances for colder-than-normal conditions exist for the southern Plains to New England, while warmer-than-normal weather is favored across the West to northern Plains and southern Florida.

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

Corn: Net sales of 2,160,600 MT for 2015/2016--a marketing-year high--were up 80 percent from the previous week and up noticeably from the prior 4-week average. Increases were reported for Japan (567,400 MT, including 99,700 MT switched from unknown destinations and decreases of 8,900 MT), unknown destinations (483,200 MT), Mexico (267,600 MT), Taiwan (226,600 MT), South Korea (196,200 MT), Colombia (161,900 MT, including 107,100 MT switched from unknown destinations and decreases of 8,500 MT), and Algeria (90,000 MT). For 2016/2017, net sales of 440,000 MT were reported for unknown destinations (195,300 MT), Japan (160,000 MT), Mexico (51,500 MT), and Guatemala (33,200 MT). Exports of 1,090,600 MT were down 15 percent from the previous week and 4 percent from the prior 4-week average. The primary destinations were Colombia (285,400 MT), Mexico (280,600 MT), Japan (235,900 MT), Taiwan (71,300 MT), South Korea (55,000 MT), and Honduras (38,300 MT).

Optional Origin Sales: For 2015/2016, new optional origin sales totaling 5,800 MT were reported for Vietnam. Sales totaling 23,000 MT for unknown destinations were switched to Vietnam. Options were exercised to export 28,800 MT to Vietnam from other than the United States. The current outstanding balance totals 342,000 MT, all unknown destinations.

Barley: There were no sales reported for 2015/2016 during the week. For 2016/2017, net sales of 200 MT were reported for Japan. Exports of 100 MT were reported to South Korea.

Sorghum: Net sales of 50,500 MT for 2015/2016 resulted as increases for unknown destinations (53,500 MT) and Mexico (1,000 MT), were partially offset by reductions for China (4,100 MT). Exports of 101,300 MT were down 47 percent from the previous week and 41 percent from prior 4-week average. The destinations were China (99,900 MT) and Mexico (1,400 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: The bullish tone in the futures market continues to give DDGS prices a firm foundation. The average change for DDGS containers in all surveyed locations rose an additional $2, but the increase was much larger for June shipment over May deliveries. It is believed that some buyers are holding off, hoping that the market will turn down. Price reporting indicates they will have to wait a while, and in trading, hope is not a strategy.

Meanwhile, USDA Chief Economist Robert Johansson told Reuters that the agency expects demand for feed from China’s livestock sector to remain strong and that could help drive up U.S. sales of corn substitutes such as sorghum, barley and DDGS. He said, “We hope we can continue to sell products to feed sectors in China as long as our prices are competitive in the market.”

Ethanol Comments: The Energy Information Administration (EIA) reduced the estimated stocks of ethanol to 21.6 million barrels (-1.9 percent) as production fell by 12,000 barrels per day to 927,000 barrels per day (-1.3 percent).

The margin between the corn price and the value of ethanol and coproducts took a break this past week from its previous upward trajectory in key markets (see below). 

  • Illinois differential is $1.55 per bushel, in comparison to $1.65 the prior week and $2.40 a year ago.
  • Iowa differential is $1.58 per bushel, in comparison to $1.68 the prior week and $2.11 a year ago.
  • Nebraska differential is $1.82 per bushel, in comparison to $1.85 the prior week and $1.95 a year ago.
  • South Dakota differential is $1.79 per bushel, in comparison to $1.94 the prior week and $2.30 a year ago.

7. Country News

Brazil: Bunge’s CEO says that dryness in Brazil will shave 5 to 10 MMT off of the current corn crop. USDA has forecast an 84 MMT corn crop in Brazil. (Reuters)

China: The government is expected to soon announce its new corn policy but the average corn price rose last week by $10 to $284.98/MT. The Ministry of Agriculture has said that China will export 1.7 MMT of corn in 2016 and 2.3 MMT next year, but some believe that 5 MMT is a plausible amount. Surplus corn stocks hit 200 MMT in April and USDA’s Fred Gale says they will continue to grow until peaking in 2017/18. (Reuters, China Daily, WPI)

South Africa: The Crop Estimates Committee lowered its forecast for maize production to 7.05 MMT from last month’s 7.07 MMT estimate, but the trade believes that 7.0 MMT is a more realistic number and that up to 3.8 MMT of maize will need to be imported. (Bloomberg)

Zambia: Millers are asking for government permission to export maize bran, which is in surplus supply and could be used by neighboring countries. (WPI)

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: It appears the recent Baltic Index and physical market rally in the Dry-Bulk sector may have topped out and now is in a bit of a correction mode, at least for the moment. Some of the bloom may be coming off the rose. I think it is important for vessel owners to understand that things do not go up forever, especially when the market remains in an oversupply situation. Sellers need to simply take advantage of any rallies they get.

Vessel owners are doing their best not to engage in new build orders and the suffering ship yards are trying to lure them back with big discounts. I hope owners do not take the bait. Vessel scrapping continues at a good pace and we have even seen four to six 2002-built (14-year old) Post Panamax container ships (5,447 TEU each) go to the scrap yard over the past 6 months.

I’ve gotten some outside input on my estimate of corn and wheat rates from the U.S. Gulf to Northern Brazil. Depending on the vessel size and discharge guarantee freight brokers have given me quotes of between $13 and 17.00/MT. So my guess of $15-16.00/MT was not far off. This movement is most likely to ship in a geared Handymax vessel.

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 year-to-date 2016 versus January-December 2015 annual totals for container shipments to Malaysia.

Container Shipments 1
Container Shipments 2

10. Interest Rates

Interest Rates