1. Chicago Board of Trade Market News
Outlook: USDA’s May 10 WASDE report made clear that both corn production and consumption are getting larger. Despite the May 19 retrenchment, corn has achieved bullish momentum and has been trading above trend. That is impressive considering the very positive weather outlook for the Corn Belt, and while attention has finally turned to that factor it was the rising dollar that served as the trigger. Until this week, momentum was a more important focus than the weather. In short, U.S. corn is going to be highly competitive for several weeks to come.
Exports are key and after a two-month hiatus, U.S. corn exports to China bounced back in March to put first quarter volume ahead of the two previous years, albeit at a lower price. Indeed, U.S. corn exports are booming altogether as this made the ninth week out of the past 11 in which sales exceeded 1 MMT. Sales reported for this past week were 1,473,100 MT of old crop and 540,700 MT of new crop corn.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: The NWS WPC 7-Day Quantitative Precipitation Forecast (QPF) calls for significant rainfall accumulations in the Gulf Coast, Mid-Atlantic, Southeast, and Texas with totals ranging from two-to-four inches. Otherwise, lesser accumulations are forecasted for extreme northern California, the Northern Rockies, and the Pacific Northwest. The CPC 6–10 day outlooks call for a high probability of above-normal temperatures east of the Rockies while the West is expected to be below-normal. Below-normal precipitation is forecasted for the Eastern Tier and Desert Southwest while there is a high probability of above-normal precipitation in the western portions of the Midwest and South, Northern Great Basin, Northern Rockies, Pacific Northwest, and across the Plains states.
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 1,473,100 MT for 2015/2016 were up 33 percent from the previous week and 13 percent from the prior 4-week average. Increases were reported for Japan (572,600 MT, including 160,200 MT switched from unknown destinations and decreases of 900 MT), Saudi Arabia (265,000 MT, including 55,000 MT switched from unknown destinations), Mexico (136,100 MT, including 30,000 MT switched from unknown destinations and decreases of 34,300 MT), South Korea (132,500 MT, including 65,000 MT switched from unknown destinations), Peru (100,900 MT, including 45,000 MT switched from unknown destinations), and Chile (82,800 MT, including 45,000 MT switched from unknown destinations). Reductions were reported for unknown destinations (26,700 MT), Colombia (800 MT), and New Zealand (500 MT). For 2016/2017, net sales of 540,700 MT were reported for unknown destinations (191,000 MT), Mexico (154,000 MT), Guatemala (88,600 MT), Jamaica (88,400 MT), Taiwan (18,000 MT), and Panama (600 MT). Exports of 1,175,100 MT were up 3 percent from the previous week, but down 1 percent from the prior 4-week average. The primary destinations were Japan (347,400 MT), Mexico (265,800 MT), Taiwan (69,500 MT), South Korea (67,900 MT), Saudi Arabia (55,000 MT), Peru (49,500 MT), Algeria (45,600 MT), and Chile (45,300 MT).
Optional Origin Sales: For 2015/2016, the current optional origin outstanding sales balance totals 392,000 MT, all unknown destinations.
Barley: There were no sales reported during the week. Exports of 600 MT were reported to Japan (400 MT) and South Korea (200 MT).
Sorghum: Net sales of 51,600 MT for 2015/2016 resulted as increases for China (57,600 MT, including 58,000 MT switched from unknown destinations and decreases of 400 MT), Colombia (600 MT), and Canada (100 MT), were partially offset by reductions for unknown destinations (6,500 MT) and Japan (200 MT). Exports of 76,800 MT were up 22 percent from the previous week, but down 48 percent from prior 4-week average. The destinations were China (57,600 MT), Colombia (15,600 MT), Japan (2,800 MT), and Mexico (800 MT).
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS prices continued their higher trek this past week, though at a more tempered pace. The seesaw in price movements showed last week’s increases pushed forward into Asian markets this week. Some Asian buyers have begun looking at purchases for July/August shipment; others may be gambling that good weather and increased ethanol grind will eventually deliver cheaper prices. Of course, those buyers that failed to cover prior to the most recent increase in corn and soymeal prices have paid a price.
Overall, the market continues to be influenced by high soymeal prices, and the July soybean contract has remained firm. There is ample supply but there is also big demand, with China back in the market this past week for both corn and DDGS.
Ethanol Comments: U.S. Environmental Protection Agency (EPA) called for ethanol blending in 2017 to be 300 million gallons (100 million bushels of corn) greater than in 2016, but 200 million gallons less than the amount targeted by statute.
The Energy Information Administration (EIA) again reduced (-0.7 percent) the estimated stocks of ethanol to 21.1 million barrels, and pegged production for the past week to be down (-1.5 percent) to 948,000 barrels per day.
The margin between the corn price and the value of ethanol and coproducts was up in three out of the four key markets from a week ago (see below).
- Illinois differential is $1.77 per bushel, in comparison to $1.44 the prior week and $2.49 a year ago.
- Iowa differential is $1.63 per bushel, in comparison to $1.54 the prior week and $2.39 a year ago.
- Nebraska differential is $1.60 per bushel, in comparison to $1.72 the prior week and $2.18 a year ago.
- South Dakota differential is $1.87 per bushel, in comparison to $1.74 the prior week and $2.56 a year ago.
7. Country News
Brazil: Dry weather promoted the Safrinha corn crop to mature early and farmers are harvesting early as current higher prices more than offset the additional cost of drying. The crop will be 4 MMT smaller at 53 MMT and the overall crop is lowered by 5 MMT to 79 MMT. (Reuters; Conab)
India: The state of Bihar banned liquor sales a few weeks ago and to now address the adverse impacts on farmers and distillers, the government is asking petroleum suppliers to blend ethanol into their fuels. (The Economic Times)
India: Imports of 225 KMT of corn have failed to dent price rises ($190.29/MT) as the Bihar corn crop is arriving with high moisture content – which could lead to damage. (WPI)
Ukraine: The economy is beginning to improve as indicated by an expected 7 percent increase in poultry demand, which will boost consumption of the new corn crop. (Bloomberg)
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: Though global freight markets remain far away from any true recovery they will, and are, bouncing around with every small increase in demand – even if it is only temporary. So, charterers will have to endure some degree of volatility as they pick their opportunities to buy freight. The U.S. Gulf to Mexico is a good example of this, as during the past 6 months this short-haul route has seem freight fixed from a low of about $9.50/MT to a high of $13.75/MT. Ocean freight buyers will certainly have good opportunities to lock in attractive freight as we go forward, but they will have to manage market volatility in the process.
An uptick in demand for Capesize vessels pulled the market up this week and the Panamax sector followed. Most of the action occurred in the Atlantic. Buyers of Handy size freight (25-38,000 MT) need to be the most careful as this sector is showing the strongest owner returns in this depressed market.
Average daily earnings for Capesize vessels moved up to $6,286 this week. The average daily earnings for Panamax vessels increased $4,768 per day. According to Norden Shipping, 5-7 percent of the current Dry Bulk fleet could be scrapped by the end of 201. World fleet growth is estimated at 1-3 percent this year. BIMCO expects the container shipping fleet to break the 20 million TEU barrier soon. Container shipping TEU capacity increased by 240 percent over the past 10 years. At the end of 2015 it was at 19.7 million TEU.
The charts below represent year-to-date 2016 versus January-December 2015 annual totals for container shipments to Vietnam.