1. Chicago Board of Trade Market News
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Outlook: In the week following USDA’s announcement of the largest corn crop on record, prices have rallied. Since the market’s close on October 12 (the October WASDE release date) December futures have climbed 14 cents, buoyed by better-than-expected demand. Exports and ethanol have been supportive to corn, even as combines continue to harvest the 15-billion-bushel crop. Harvest had reached 46 percent complete across the U.S. as of Monday’s USDA report and is now likely well above 50 percent. This year’s harvest is lagging behind both last year’s and the five-year average pace but good weather has largely alleviated any harvest concerns. Indeed, the good weather may be helping delay the harvest as farmers temporarily “store” unharvested corn in the field. Storage capacity will be very tight this year and reports of grain being stored uncovered in piles on the ground are already surfacing. With the supply situation essentially fixed for the year, attention will be focused on demand to work off this year’s record production.
Lower crop prices have certainly performed their function of stimulating demand to absorb the coming large crop. The latest export sales report from USDA shows exporters sold 40 million bushels of corn last week and exported 33.5 million, bringing marketing-year-to-date exports to nearly 300 million bushels. More impressively, year-to-date bookings (exports plus outstanding sales) have reached 885 million bushels, an increase of 89 percent from this time last year. USDA’s October projections for U.S. 2016/17 corn exports totaled 2,225 million bushels, and this week’s sales exceeded what was needed to meet this figure.
Similar to export trends, corn has been receiving support from the ethanol market which is experiencing seasonally high demand. The warm October weather has been extending the driving season and the Department of Transportation reports traffic miles across the U.S. are up 3 percent in 2016. Ethanol margins have been excellent in recent weeks which is pulling more corn into the ethanol grind.
December corn futures spent much of the past week trading above key technical support at $3.50. The rally was initially triggered by managed money short covering and some commercial end-user buying but was further supported by demand fundamentals. Thursday’s early trading saw a high price traded just below $3.60 (another important technical point) but bulls were unable to push the market higher and a round of farmer and commercial selling sent the corn markets sharply lower. From a technical perspective, Thursday’s trading was bookended by both bearish and bullish factors. Bearish signals were flashed as December corn failed to close (or trade very long) above the 100-day moving average ($3.58) and did briefly trade below $3.50. Bulls can remain optimistic, however, as the contract closed above both the10-day moving average and the $3.50 mark. The 10, 20, and 40-day moving averages continue to indicate a bullish trend may be developing, though after increasing over 40 cents from the life-of-contract low ($3.14 ¾) the market may pause and correct before demand can move prices higher.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: Unfavorably dry conditions are expected to linger over many of the nation’s drought areas over the next 5 to 7 days. In particular, little – if any – rain is expected over the Southeast as well as the southern half of the Great Plains. Exceptions to the dry outlook include the potential for locally heavy rain from the central Appalachians into northern New England, and from northern California into the northern Rockies and Pacific Northwest. The NWS 6- to 10-day outlook for October 25-29 calls for near- to above-normal temperatures over most of the nation, with cooler-than-normal conditions confined to New England and the central Pacific Coast. However, the outlook features a wetter-than-normal signal from the Pacific Coast into the Ohio Valley and Great Lakes, with drier-than-normal conditions limited to portions of Texas and from the Delta into the Southeast and Mid-Atlantic 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 1,023,000 MT for 2016/2017 were up 17 percent from the previous week, but down 8 percent from the prior 4-week average. Increases were for unknown destinations (226,600 MT), Colombia (197,100 MT, including 35,000 MT switched from unknown destinations and decreases of 16,400 MT), Peru (114,000 MT, including 80,000 MT switched from unknown destinations), Saudi Arabia (74,900 MT, including 68,000 MT switched from unknown destinations), and Vietnam (74,500 MT, including 70,000 MT switched from unknown destinations and decreases of 100 MT). Reductions were for Guatemala (10,000 MT) and the Dominican Republic (2,800 MT). Exports of 851,000 MT were down 32 percent from the previous week and 35 percent from the prior 4-week average. The primary destinations were Saudi Arabia (140,000 MT), Mexico (124,800 MT), Colombia (102,300 MT), Peru (84,800 MT), Vietnam (76,900 MT), Bangladesh (60,400 MT), and the Dominican Republic (42,300 MT).
Optional Origin Sales: For 2016/2017, new optional origin sales totaling 40,000 MT were reported for unknown destinations. The current outstanding balance of 403,000 MT, is for unknown destinations (338,000 MT) and Taiwan (65,000 MT).
Barley: No net sales were reported for the week. Exports of 200 MT were reported to Japan.
Sorghum: Net sales of 200 MT for 2016/2017 were for Indonesia. Exports of 3,100 MT were reported to Mexico (2,900 MT) and China (200 MT).
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS prices were higher for almost all reference markets this week, rising $4/ton on average. U.S. prices in NOLA and other Gulf locations were higher. U.S. rail rates were $5/ton higher this week on average and Canadian rail-delivered DDGS rose $11/ton. Internationally, containers to Southeast Asia were $4/ton higher on average and prices for November delivery to Vietnam and Japan saw the highest increases. Prices for December and January delivery experienced more modest increases as buyers are still filling near-term needs while waiting to judge future market conditions before securing product for late winter/early spring.
A recent study conducted by South Dakota State University shows feeding higher concentrations of DDGS in feed rations has no detrimental impacts on the onset of puberty in dairy heifers. The study compared three groups of dairy heifers that were fed different concentrations of DDGS and grass hay for 16 weeks. The results showed heifers fed the higher DDGS rations experienced metabolic changes that led to improved feed gain efficiency. Importantly, the study also found, contrary to a priori expectations, feeding increased DDGS levels did not alter the onset of puberty.
Ethanol Comments: Ethanol margins are higher this week and that incentivized plants to expand production 36,000 barrels per day from last week, with production reaching 998,000 barrels per day. Despite the production increase, ethanol stocks fell 351,000 barrels this week even as gasoline consumption fell 466,000 barrels per day during the same time period. Ethanol exports remain strong and are largely responsible for the stocks drawdown.
The margin between the corn price and the value of ethanol and coproducts was higher this past week across all four reference markets (see below), with the largest gains noted in Nebraska and Illinois. Compared to this same week last year, the spread is $0.44-$0.76 higher in all reference markets.
- Illinois differential is $2.29 per bushel, in comparison to $2.18 the prior week and $1.53 a year ago.
- Iowa differential is $2.04 per bushel, in comparison to $2.03 the prior week and $1.40 a year ago.
- Nebraska differential is $2.09 per bushel, in comparison to $1.93 the prior week and $1.61 a year ago.
- South Dakota differential is $2.09 per bushel, in comparison to $2.05 the prior week and $1.65 a year ago.
7. Country News
Brazil: Estimated corn exports for the current local marketing year (March-February) were raised by USDA to 16 MMT, up 0.5 MMT from a month earlier but still 52 percent lower than last year’s exports. (USDA)
China: After selling a total of 20 MMT from its state-owned corn reserve, the government has suspended sales for the marketing year and has asked state-owned milling companies to increase their purchase of new crop corn from farmers. The government says it is reforming its stockpiling system and will take measures to protect farmers. Meanwhile, it is offering a 200 yuan/MT subsidy to corn refiners with the expectation that these companies will pay farmers a price in line with what the state grain reserve is paying (1,400 yuan/MT; $207/MT). The announced subsidy caused the futures market price to jump by 1.9 percent to $220.48/MT. (Bloomberg; Reuters)
Mexico: Representatives from five grain importers are visiting Iowa this week to assess the new crop. (Reuters)
Philippines: The local monthly allocation of ethanol required to meet the 10 percent blend mandate for the first quarter of 2017 was pegged at 75,835 cubic meters (20 million gallons). That is a 21 percent increase from the fourth quarter of 2016, and a 1.5 percent rise from first quarter 2016. Domestic production is increasing but the Philippines will still need to import nearly 43 percent of its supply in 2017 in order to meet the blend requirement. The domestic price of ethanol is 2.5 times greater than the imported fuel price and one end-user is quoted saying that ethanol should be imported instead of the feedstock being imported to make ethanol domestically. (Platts)
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: Freight futures players have done a good job of rallying the Baltic freight indices this week and physical freight markets have grudgingly followed. The Baltic Dry-Bulk Panamax index jumped 15 percent this week and moved from 673 to 905, an increase of 232 points or 34 percent since August 1. For the most part physical rates have moved up by about 12 percent over the same period. The recent price run up has given vessel owners and operators cause for greater optimism. I do not, however, believe this is a sign of a true market turnaround. I do believe Dry-Bulk markets bottomed out in February 2016, and grain container markets in mid-summer, but I am not yet convinced that we are at a point that justifies significantly higher rates. As mentioned previously, we still have a large imbalance in vessel supply verses cargo demand. The North American fall grain harvest has contributed to improved vessel demand. This demand pull will likely continue through December-January.
The charts below represent year-to-date 2016 versus January-December 2015 annual totals for container shipments to China.