Market Perspectives August 25, 2016

1. Chicago Board of Trade Market News

Week in Review

Outlook: In the wake of the August WASDE report, the market has largely been focused on Midwest crop tour reports, especially those of the ongoing Pro Farmer tour. So far, the tour has noted frequent incidences of ear tip back in Ohio, Indiana, and South Dakota but little other negative news. The tour’s estimation of Nebraska’s yield found a 4 percent decrease from the prior year while yield estimations in Indiana were 6 percent higher than 2015. Yield estimates for Illinois were pegged at 193.5 bushels per acre, up from 188 the prior year. In total, the tour results so far indicate the USDA’s latest yield estimate may be overstated, but likely not by much. 

Thursday’s export sales report was bearish with sales of 2.8 million bushels of old crop corn, the lowest sales figure for the marketing year. The sales figure is on-track to meet USDA’s projections for the year but lagging export shipments threaten the ability to meet the forecast. Shipments for the week totaled 41.2 million bushels, below what was needed to meet the USDA’s forecast. 

December corn futures are drifting to the downside but lack any serious direction. The December contract closed below the 10-day moving average which give slight advantage to the bears but support is not far off, lying at $3.29 initially and again at $3.22. While the long-term trend for corn is deeply bearish, upward corrective action is still possible. In such case, resistance lies at $3.44 and $3.46, where the market was turned around earlier this week. Without significant news developments, the market is most likely to continue drifting sideways to slightly lower. The most bearish news, USDA’s record yield projections, has already been absorbed by the market and traders now wait for confirmation or rejection of USDA’s forecasts. 

Cash prices across the U.S. have been largely stable with increases noted in interior areas. Interior basis has strengthened as exporters are procuring supplies to fill an increasing number of corn vessels in the lineup. The national corn basis, however, has remained steady this week at $0.31 under the September corn contract. Many farmers are now perceiving flat price sales as their best marketing option before harvest kicks in.

2. CBOT Corn Futures

CBOT December Corn Futures

CBOT Corn Futures Graph

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

US Crop Condition

U.S. Drought Monitor Weather Forecast: For the remainder of the week, late-summer heat will return to the East and the Far West, while a surge of cool air will briefly cover much of the nation’s mid-section. During the weekend, however, temperatures will rebound to near- or above-normal levels in the central U.S., while late-season heat will persist in the East and West. During the next 5 days, the most significant, large-scale plume of moisture will stretch from southern sections of the Rockies and Plains into the Great Lakes region, resulting in 1- to 5-inch rainfall totals. In contrast, the Far West and the Mid-Atlantic States will remain mostly dry. During the weekend, a tropical wave (or named tropical storm) could result in heavy showers and local flooding in the southern Atlantic region, especially across southern Florida. 

The NWS 6- to 10-day outlook for August 30-September 3 calls for the likelihood of above-normal temperatures nearly nationwide, with the greatest odds of late-summer heat occurring in the eastern U.S. Cooler-than-normal conditions should be confined to northern California and the Pacific Northwest. Meanwhile, below-normal rainfall across the Intermountain West, Southwest, and central and southern Plains will contrast with wetter-than-normal weather across the nation’s northern tier, along and near the Gulf Coast, and in the mid-South and Midwest. 

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 71,100 MT for 2015/2016--a marketing-year low--were down 58 percent from the previous week and 82 percent from the prior 4-week average. Increases were reported for Japan (126,900 MT, including 109,200 MT switched from unknown destinations and decreases of 8,800 MT), Bangladesh (60,800 MT), Israel (50,400 MT, including 44,400 MT switched from unknown destinations), Chile (42,500 MT, switched from unknown destinations), and Mexico (22,800 MT). Reductions were reported for unknown destinations (286,700 MT), Morocco (22,900 MT), Guatemala (4,700 MT), and Honduras (1,000 MT). For 2016/2017, net sales of 1,059,900 MT were reported primarily for unknown destinations (480,100 MT), Mexico (119,000 MT), and Colombia (99,000 MT). Exports of 1,045,900 MT were down 10 percent from the previous week and 18 percent from the prior 4-week average. The primary destinations were Japan (359,000 MT), Mexico (121,400 MT), Colombia (88,400 MT) Taiwan (72,200 MT), and South Korea (68,100 MT). 

Optional Origin Sales: For 2015/2016, the current optional origin outstanding balance is 334,000 MT, all unknown destinations. For 2016/2017, the current outstanding balance is 65,000 MT, all Taiwan.  

Barley: Net sales of 100 MT for 2016/2017 were reported for Taiwan. There were no exports reported during the week.  

Sorghum: Net sales reductions of 800 MT for 2015/2016 were reported for Mexico. For 2016/2017, net sales of 68,900 MT were reported for unknown destinations (58,000 MT) and Mexico (10,900 MT). Exports of 2,300 MT were down 97 percent from the previous week and 99 percent from the prior 4-week average. The destinations were Mexico (2,200 MT) and Indonesia (100 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: U.S. DDGS exports are on track to reach a new record this year. The most recent USDA data shows U.S. DDGS exports are up 6 percent for the 2015/16 MY which, if continued, could put total marketing year exports near 12 million tons. Export volume of this magnitude would be very close to the record set in the 2013/14 MY. 

The near record ethanol production this week failed to significantly dampen DDGS prices. Across all reported destinations, prices rose $1/ton this week with prices for rail delivery to the PNW strengthening the most at $6/ton. Prices for product destined for the U.S. Gulf or NOLA moderated from last week’s strong gains but are underpinned by sellers maintaining offers at 100 percent of corn value. Market strength was also observed for Asia-destined containers with an average price increase of $2/ton. Prices for October delivery increased the most with containers to the Philippines and Indonesia increasing $5/ton over the prior week. 

Some merchandisers are reporting stronger demand in the rail and export markets which is likely to buoy prices for spot delivery at least. DDGS prices are competitive with corn and soybean meal in many feed rations right now which is prompting buyers to ask for forward prices. Sellers, however, anticipating good winter demand and slowing ethanol production are reluctant to book very far in advance. Export demand remains the wild card in the pricing outlook but exports have been consistently strong and may help overcome any remaining bearish sentiment from the large corn crop. 

Ethanol Comments: Ethanol production this week nearly tied the record high for a second week in a row. Weekly production reached 1.028 million barrels, 1,000 barrels short of tying the record 1.029 million barrels produced last week. The breakneck pace of ethanol production in the past two weeks has pushed stocks higher to 20.817 million barrels. Gasoline consumption moderated somewhat this past week as the start of school in some areas signals the end of summer driving demand. U.S. gasoline consumption reached 9.659 million barrels per day during the past week, a decrease of 100,000 barrels from the prior week. 

The margin between the corn price and the value of ethanol and coproducts was mixed this past week across the four reference markets (see below), and the spread versus this time last year was higher for Illinois and South Dakota but modestly lower for Iowa and Nebraska. 

  • Illinois differential is $1.87 per bushel, in comparison to $1.89 the prior week and $1.77 a year ago.
  • Iowa differential is $1.78 per bushel, in comparison to $1.72 the prior week and $1.81 a year ago.
  • Nebraska differential is $1.43 per bushel, in comparison to $1.45 the prior week and $1.48 a year ago.
  • South Dakota differential is $1.88 per bushel, in comparison to $1.80 the prior week and $1.82 a year ago.

7. Country News

France: Dryness since July may cut ear size and thus output of maize this year. Officials call for a 13 percent reduction from the five-year average but Dale Mohler of AccuWeather says it could be up to a 20 percent reduction. (Bloomberg) 

Germany: Beer makers in Europe are paying 11 percent more for malt due to excessive rain damaging the barley crop. French barley output this year could fall 21 percent to 10.2 MMT. Prices were as high as $238/MT but have fallen back due to harvest progress in the UK. (Bloomberg) 

South Africa: Analysts are maintaining their estimate of 7.26 MMT of maize production for this year but Brink van Wyk of BVG says that next year’s production of white corn could double if La Nina produces the rains that are possible. (Bloomberg)

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: As you can see from the market reports of the last few weeks, rates and market activity are just bouncing around in a narrow price range. One week things are up fifty cents to a dollar and the next week they are back down. It has been, and likely will continue to be, difficult for ocean freight markets to have a breakout on either side of the equation. It is likely, however, that we will experience a little uptick in values as we get into the fall grain harvest and export demand increases. Storage space will be a challenge this year for the U.S. corn and soybean harvest; some facilities are already telling farmers that they can only take their grain if it is sold. Facilities will need to quickly ship product in order to stay open and handle the whole crop. This will surely lead to the need to increase exports in the first quarter of the crop year. However, once the harvest activity and subsequent need to move grain diminishes things are surely destined to fall back into their old trading ranges.

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 Indonesia.

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

10. Interest Rates

Interest Rates