1. Chicago Board of Trade Market News
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Outlook: So far, the October WASDE has done little to move corn futures out of their range-bound trading pattern. December corn futures have found support at $3.40 with strong resistance only 10 cents away at $3.50. The October WASDE was largely neutral for the corn markets, though they remain shrouded in bearish domestic and global supplies. Good weather is enabling the harvest to progress according to schedule and little supply risk remains. At this point, the corn market hangs in the balance between a record large crop and increasingly bullish export opportunities.
Additions to U.S. corn production and harvested acreage were noted in the October WASDE while export increases pared ending stock estimates. U.S. corn production for 2016/17 will be a record 15.057 billion bushels after USDA increased harvested acreage from the September report to 86.8 million acres and trimmed yields to 173.4 bushels per acre. The acreage increase was above expectations while the modest yield reduction was in-line with analysts’ pre-report thoughts. Notably, despite the production increase, U.S. ending stocks for the 2016/17 crop year were reduced by 40 million bushels after USDA increased export expectations by 50 million bushels to 2.225 billion bushels. Ending stocks for the coming marketing year are estimated at 2.32 billion bushels, up from 1.738 in 2015/16. The USDA increased expectations for U.S. corn prices by 5 cents per bushel, with the midpoint of USDA’s range falling at $3.25 per bushel.
Modest adjustments in international corn supply and demand fundamentals were noted as well with the USDA increasing Brazil’s corn production to 83.5 MMT and reducing, slightly, the global corn crop. South African 2015/16 corn production estimates were increased 13 percent from the September report to 7.9 MMT. Global ending stocks were cut by 3 MMT from the September report to 216.81 MMT for the 2016/17 crop year.
From a technical perspective, December corn is giving little indication of moving one direction or the other. Wednesday’s WASDE-induced selloff created a significantly bearish “outside day” in the charts, which was immediately reversed by Thursday’s 12 ½ cent gain. The Relative Strength Index (RSI) is neutral but some bullish developments are seen with the 10-day, 20-day, and 40-day moving averages pulling away from each other to the upside. The market has found support near $3.40 and even stronger support lies near the 40-day moving average at $3.35. Bulls will have to work hard to push prices above prominent resistance at $3.50, a point above which futures have not traded since July 19, 2016. The strong pace to export so far may support prices in the near-term but the overall trend is still bearish for corn.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: Over the next 5-7 days, a storm pattern will continue to impact the Pacific Northwest, with significant rain anticipated along the coastal region from northern California to Washington. These storms will also impact the interior Northwest into central Montana and western Wyoming, bringing widespread precipitation. The Midwest and Great Lakes regions will also see precipitation as well as portions of the southern Plains. The Southeast looks to remain dry into the Mid-Atlantic. Temperatures are anticipated to be warmer than normal over much of the country, with only the areas of the Pacific Northwest being cooler than normal due to the anticipated precipitation. Departures will range from 12-15 degrees above normal for daily high temperatures over the Texas and Oklahoma panhandles to 9-12 degrees below normal over northern California.
The 6-10 day outlooks show that the warm October is anticipated to continue. Almost the entire country (outside of the Great Basin and Central Rocky Mountain regions) has a higher probability of warmer than normal temperatures, with the highest likelihood over the Southeast and Mid-Atlantic. Higher probabilities of above-normal precipitation exist for the Pacific Northwest and interior Northwest, High Plains, Midwest, Northeast and the western side of the Mississippi River Valley. Below-normal precipitation is anticipated over much of the Southeast and into 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
Note: The following export highlights for corn, barley and sorghum reflect the week of September 29, 2016.
Corn: Net sales of 2,060,800 MT were reported for 2016/2017. The primary destinations were Mexico (1,251,100 MT), Japan (200,100 MT, including 75,400 MT switched from unknown destinations and decreases of 4,500 MT), Saudi Arabia (136,800 MT, including 111,000 MT switched from unknown destinations and decreases of 900 MT), South Korea (128,300 MT, including 125,000 MT switched from unknown destinations and decreases of 400 MT), and Colombia (86,000 MT, including 32,000 MT switched from unknown destinations, and decreases of 8,600 MT). Reductions were for unknown destinations (92,900 MT), Costa Rica (9,900 MT), and Chile (2,900 MT). For 2017/2018, net sales of 541,000 MT were reported for Mexico. Exports of 1,390,200 MT were reported to Japan (376,000 MT), South Korea (261,800 MT), Mexico (166,400 MT), Saudi Arabia (136,800 MT), Taiwan (76,200 MT), Chile (69,800 MT), and Colombia (69,100 MT).
Optional Origin Sales: For 2016/2017, options were exercised the export 58,000 MT to Japan (switched from unknown destinations) from the United States. The current outstanding balance of 283,000 MT, is for unknown destinations (218,000 MT), and Taiwan (65,000 MT).
Barley: Net sales of 200 MT for 2016/2017 were reported for Taiwan (100 MT) and Japan (100 MT). Exports of 200 MT were reported to Taiwan.
Sorghum: Net sales of 5,000 MT for 2016/2017 resulted as increases for Japan (9,300 MT, including 8,100 MT switched from unknown destinations and decreases of 1,100 MT) and Nigeria (2,400 MT), were partially offset by reductions for unknown destinations (6,600 MT). Exports of 19,500 MT were reported to Japan (19,300 MT) and Mexico (200 MT).
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS prices have taken a firmer tone this week despite light trading. Reports suggest most forward buying is light with purchasers waiting for a market bottom before aggressively filling their needs. Despite firmer pricing, DDGS are finding ways to remain competitive against soybean meal in livestock rations. On a per protein unit basis, the cost of DDGS is near $4.32 versus $6.35 for soybean meal, making it an attractive feedstuff. DDGS production will start to increase again as the seasonal fall maintenance period comes to a close, providing an opportunity for end users to procure product at attractive prices.
Internationally, Vietnam has been a buyer of November shipments and some sales to China have been noted as well. Taiwan and South Korea are reportedly expressing interest in procuring U.S. DDGS but executed trades have been small in number so far. Vietnam is requesting U.S. exporters alter some phytosanitary procedures which may temporarily give sales preference to other buyers of U.S. DDGS.
Ethanol Comments: Ethanol margins are lower and caused plants to cut production nearly 20,000 barrels per day from last week, with production reaching only 0.962 million barrels per day. The production slowdown drew down ethanol stocks by 784,000 barrels to 19.393 million. Further helping draw down stocks was a week-over-week increase in gasoline consumption of 177,000 barrels per day. The mixed report, declining production and increasing usage, sets up a bullish scenario for late-season ethanol demand in the U.S.
The margin between the corn price and the value of ethanol and coproducts was lower this past week across three of the four reference markets (see below), with the largest losses noted in Iowa and South Dakota. Compared to this same week last year, the spread is $0.31-$0.54 higher in all reference markets.
- Illinois differential is $2.18 per bushel, in comparison to $2.34 the prior week and $1.64 a year ago.
- Iowa differential is $2.03 per bushel, in comparison to $2.24 the prior week and $1.47 a year ago.
- Nebraska differential is $1.93 per bushel, in comparison to $1.93 the prior week and $1.62 a year ago.
- South Dakota differential is $2.05 per bushel, in comparison to $2.41 the prior week and $1.71 a year ago.
7. Country News
Africa: Chicken meat imports into sub-Saharan Africa tripled between 2004 and 2014. Development groups have wanted Africans to use indigenous birds but now the Bill and Melinda Gates Foundation is funding the breeds with faster growing genetics that will enable more domestic production. The second issue to tackle is the concurrent increase in relatively high cost feed, $25 for a 110-pound bag. (BBC News)
Argentina: Ethanol production, up 6 percent in first half 2016, will be sold to refiners at $0.87/liter for alcohol derived from sugarcane and $0.82/liter if derived from corn. Those are slight reductions from a month earlier and refiners must blend into gasoline to meet a 12 percent level. (Platts)
Brazil: Despite protests from some groups, Secretary of Agribusiness and International Relations Odilson Ribeiro Silva has approved the Chamber of Foreign Trade allowing the importation of up to one million tons of transgenic corn seed. (Telesur)
EU: A second year in a row of poor weather conditions has lowered the estimate of total maize production to 59.7 MMT (11 percent below the five-year average), and it could go lower if more fields are turned to fodder. At 59.6 MMT, barley production will be similar to last year and 2 percent above the five-year average. Feed wheat will be used to help meet the 174.8 MMT projected demand for animal feed in 2016/17. (EU Short-term Outlook for Arable Crops)
India: The Cabinet is looking at cutting the price of ethanol in an effort to get oil marketing companies to buy supplies from sugar mills earlier rather than later. India’s blend mandate, which has been in place for 13 years, left the mills with the cost of carrying product last year. (Biofuels Digest)
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: China is just back from the Golden Week holiday and freight markets are struggling to sort out what should, or will, happen next. The market confusion will be very evident when you review the market rate changes for the week. I’m not seeing many freight fixtures and that is certainly adding to the lack of clarity in this week’s market. I am, however, picking up an unusually wide range of market opinions from vessel brokers, operators and traders; hence, the up and down moves noted in the rate quotes this week. The North American harvest is in full swing and vessel lineups at U.S. ports are growing. Additionally, we are seeing a temporary return of U.S. wheat shipments to routes like North Africa, which haven’t been in play over the past couple of years. Hopefully some of the freight market murkiness will abate next week and I’ll be able to better sort out the rates and spreads.
The charts below represent year-to-date 2016 versus January-December 2015 annual totals for container shipments to Taiwan.