Market Perspectives June 9, 2016

1. Chicago Board of Trade Market News

Week in Review

Outlook: Ninety-eight percent of the U.S. corn crop was planted as of June 5, 2016. USDA’s weekly crop progress report rated 75 percent of the corn crop at good/fair, up from 72 percent a week ago.

USDA’s next WASDE will be issued tomorrow (June 10) and the average of estimates by industry analysts ahead of that report is that the agency will raise the old corn crop export estimate (at least 25-50 million bushels) and lower the carryout by 1.7 million bushels. They also believe that the production estimate for the 2016/17 crop will be reduced by 67 million bushels to 14.363 billion bushels. 

Early farmer selling turned out to be a mistake and producers are now more cautious about unloading until they better understand the market top. The market is also bolstered by continued dryness in South American production areas, and Argentine farmers still failing to deliver enough corn to the ports. The weather premium built into the Midwest U.S. crop this past week may be premature, however, given that there is no high pressure ridge to lock in high temperatures, and the outlook actually calls for cooler temps ahead.

Strong corn products demand in China is pushing prices higher and the Middle Kingdom bought 113 KMT of U.S. sorghum.

Finally, it should be noted that now that the funds have acquired large long positions in the market, they are likely to defend them. Whether their positions are sustainable without adverse weather will take time to resolve.

2. CBOT Corn Futures

July Corn Futures

CBOT Corn Futures Graph

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

US Crop Planting Progress
US Crop Condition

U.S. Drought Monitor Weather Forecast: Next week’s forecast (June 9-16) calls for hot and relatively dry conditions as a ridge moves across the Great Plains, Mississippi Valley, Ohio Valley, and Southeast. Significant rainfall accumulations are expected across the upper Midwest as thunderstorms move through the region. The National Weather Service 7-Day forecast also calls for dryness across much of California and northwestern Montana and accumulations of generally less than a half an inch across the lower elevations of the West. The Climate Prediction Center 6-10 day outlooks call for a continuation of above normal temperatures June 14-18 across the western two-thirds of the contiguous U.S. and a relief to the recent warmth in the Pacific Northwest and New England. As for precipitation, the odds favor above-normal accumulations in the Pacific Northwest, the Midwest, and the South while the Plains and Northeast are likely to be below normal.

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

US Export Sales and Exports
US Export Inspections
USDA Grain Inspections for Export

Corn: Net sales of 1,558,900 MT for 2015/2016 were up 18 percent from the previous week and from the prior 4-week average. Increases were reported for Japan (409,200 MT, including 108,500 MT switched from unknown destinations and decreases of 1,500 MT), South Korea (210,200 MT, including 68,000 MT switched from unknown destinations), Venezuela (150,000 MT), unknown destinations (144,900 MT), Vietnam (127,600 MT), and Saudi Arabia (78,700 MT). Reductions were reported for the French West Indies (6,800 MT) and Morocco (900 MT). For 2016/2017, net sales of 120,400 MT were reported for unknown destinations (68,300 MT), Mexico (22,100 MT), Peru (11,000 MT), Honduras (10,000 MT), and Colombia (9,000 MT). Exports of 1,242,200 MT were up 65 percent from the previous week and 19 percent from the prior 4-week average. The primary destinations were Mexico (262,000 MT), Japan (257,900 MT), Saudi Arabia (148,700 MT), South Korea (137,700 MT), El Salvador (66,600 MT), Peru (56,700 MT), and Algeria (46,600 MT).

Optional Origin Sales: For 2015/2016, new optional origin sales totaling 60,800 MT were reported for unknown destinations. The current optional origin outstanding sales balance is 394,800 MT, all unknown destinations.

Barley: Net sales for the 2016/2017 marketing year, which began June 1, totaled 200 MT were for Japan. A total of 2,100 MT in sales were carried over from the 2015/2016 marketing year, which ended May 31. There were no exports for the period ending May 31. Accumulated exports were 26,200 MT, down 82 percent from the prior year’s total of 144,700 MT. Exports for June 1-2 totaled 400 MT, all Japan.

Sorghum: Net sales of 119,600 MT for 2015/2016 were down 43 percent from the previous week and 6 percent from the prior 4-week average. Increases were reported for China (63,600 MT) and unknown destinations (56,000 MT). Exports of 59,500 MT were up 11 percent from the previous week, but down 8 percent from prior 4-week average. The destinations were China (56,600 MT) and Mexico (2,700 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: The DDGS market caught fire this past week due to higher soybean meal prices. One trader says prices jumped $15/container in one day and the survey average for the trading week showed a +$23/container increase based on June shipment. Some buyers paid up but others had sticker shock. However, the survey shows similar increased prices for July/August shipment and at least one major Asian buyer is looking to lock in August/September supplies.

Ethanol Comments: Daily U.S. ethanol production rose an average 46,000 barrels and hit a more seasonal level of 1.006 million barrels. Meanwhile, demand pushed stock levels down (-2.6 percent) to 20.2 million barrels. Ethanol exports are running 5 percent higher and hit a 52 month (since December 2011) high in April. The Oil and Gas Investments Bulletin is bullish on Chinese demand and estimates that crush margins will remain positive, though some worry higher prices could slow export demand.

The margin between the corn price and the value of ethanol and coproducts was variable this past week in the four key markets tracked (see below). 

  • Illinois differential is $1.75 per bushel, in comparison to $1.83 the prior week and $2.19 a year ago.
  • Iowa differential is $1.82 per bushel, in comparison to $1.78 the prior week and $1.98 a year ago.
  • Nebraska differential is $1.64 per bushel, in comparison to $1.75 the prior week and $1.67 a year ago.
  • South Dakota differential is $2.22 per bushel, in comparison to $2.22 the prior week and $2.15 a year ago.

7. Country News

Brazil: Hog and chicken slaughter capacity has fallen up to 15 percent due to high feed costs and falling domestic meat demand. Importers are hesitant to import U.S. corn because Brazilian GMO policy does not yet recognize 14 of the varieties grown there. Future livestock production could be adversely impacted. (Reuters)

China: Shandong province sold 99.62 percent of the corn it offered from state reserves, Heibei sold 85 percent of the corn it offered from reserves, and Jilin province sold 58 percent of its stockpile. (Bloomberg) The corn market is expanding but is held back by a lack of intellectual property rights and inadequate capital investment. A consolidation will be necessary. ( Reports)

India: Exports of protein meals continued to decline in May as a lack of supply and high prices made Indian soymeal uncompetitive. (WPI)

Indonesia: Importers of corn are paying demurrage and risking cargo degradation as the Bulog’s monthly licensing scheme blocks imports above quota. (Hellenic Shipping News)

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’ve heard it said that “If freight markets are to rally it will have to be led by the Capes,” and that is certainly what happened this week. Improved Chinese demand for raw materials ahead of the Dragon Boat Festival holiday (which lasts one week) moved the Capesize markets higher and helped to pull most everything else up with it. I have to think that this move is more temporary than an indication that we are at a true turnaround point for the global freight markets. A shipping expert with a maritime consultancy said at the Coaltrans Asia conference in Bali Tuesday that “a reduction of an estimated 30 percent of excess tonnage supply is needed before the dry freight market can be turned around.” So, we probably have some time to go before anyone can get really excited about a bull market in global Dry-Bulk or containerized shipping rates.

I don’t understand, and so someone will have to explain it to me: why are the Handymax and Supramax vessels getting $14,000/day on the USG to Central America route while everyone else is getting only $5-6,000/day hire? You would think that the world fleet should rush to this business, and then things would adjust.

On the bright side of the demand picture I do see that North African countries are coming back into our market for U.S. corn. I see U.S. corn shipments going to Algeria, Morocco, Egypt and Saudi Arabia. This means that Black Sea Corn is in limited supply.

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 Vessel Pricing
US-Asia Market Spreads

The charts below represent year-to-date 2016 versus January-December 2015 annual totals for container shipments to Hong Kong.

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

10. Interest Rates

Interest Rates