1. Chicago Board of Trade Market News
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Outlook: Corn markets paused this week amid what looks to be a building rally. Having put in apparent harvest lows and climbed 36 cents from there, the corn market listlessly considered the effects of South American weather, the U.S. harvest, and export demand this week. Concerns are growing over rain in Argentina that is delaying plantings. While the weather developments certainly need to be monitored, it will take severely adverse weather in December and January to exact meaningful changes on South American, U.S., or world balance sheets. On the U.S. front, corn harvest made an impressive jump this past week as farmers, largely finished with the soybean harvest, turned their attention to their corn fields. On Monday, the USDA reported 61 percent of the U.S. corn harvest was complete, 9 percent below last year’s harvest and on-track with the 5-year average. Iowa’s harvest continues to run slightly behind normal but significant impacts are not expected.
Supply shortages in South America have allowed the U.S. to export massive volumes of corn so far this year. Reports are surfacing that the U.S. may set new records for exports in October with the strong program that has occurred so far. Year to date, new crop exports are almost double what they were this time last year. Accumulated exports through October 20 this year totaled 8.044 MMT compared to 4.623 MMT the same week last year. Total U.S. corn export bookings (exports plus outstanding sales) were up 85 percent from 2015.
Last Friday’s (October 21) CFTC Commitments of Traders report showed some interesting developments. Apparently believing the harvest low is behind and seeing opportunities for expanded export demand, managed money traders pared down short positions by 46,000 contracts and added 23,000 to their long positions. Meanwhile, commercial traders, seeing opportunities to take advantage of low prices and strong demand, added 41,000 contracts to their long positions. The details of the report seem to implicate a growing view that corn prices have upward potential.
December corn futures retreated below $3.50 in light trading on Monday and Tuesday as the market took a breather and reassessed demand implications. Wednesday and Thursday ushered in commercial and fund buying that sent December futures over the $3.50 mark again. Importantly, the nearby contract closed above its 100-day moving average on Thursday which sets the stage for a test of resistance at $3.59 ¼, the October 20 high. From there, physiological resistance at $3.70 will likely be uncovered with further resistance at $3.80, the July 14 high. A test of the $3.80 mark will likely require significant bullish fundamental developments in addition to current demand strength. On the downside, support for the contract lies at Monday’s low and again at the 10-day moving average ($3.48 ¼). Going forward, corn futures will slowly continue in the minor uptrend they’ve formed, buoyed by strong exports and pressured by global supplies.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: The NWS WPC 7-Day Quantitative Precipitation Forecast (QPF) calls for significant precipitation accumulations in northern California (two-to-ten inches) and western portions of Oregon and Washington (two-to-six inches). One-to-two inches of precipitation are forecasted for northern portions of the Midwest, while one-to-four inches are forecasted for the Northeast. Conversely, most of the southern tier of the conterminous U.S. will be dry. The CPC 6-10 day outlooks call for a high probability of above-normal temperatures across the entire conterminous U.S., apart from California and western Nevada where there is a high probably of below-normal temperatures. Below-normal precipitation is forecasted for the eastern third of the U.S. as well as the South and Desert Southwest. A high probability of above-normal precipitation is expected across the remainder of the West, Plains, and the western half of the Midwest.
Follow this link to view current U.S. and international weather patterns and future outlook: Weather and Crop Bulletin.
4. U.S. Export Statistics
Corn: Net sales of 799,300 MT for 2016/2017 were down 21 percent from the previous week and 29 percent from the prior 4-week average. Increases were for Mexico (545,200 MT), the Netherlands (68,800 MT, including 65,000 MT switched from unknown destinations), Japan (65,000 MT), Guatemala (38,100 MT, including 33,900 MT switched from unknown destinations), and the Dominican Republic (33,500 MT, including 30,000 MT switched from unknown destinations). Reductions were for unknown destinations (48,200 MT), Colombia (6,200 MT), and El Salvador (1,500 MT). Exports of 524,300 MT were down 37 percent from the previous week and 56 percent from the prior 4-week average. The primary destinations were Mexico (180,200 MT), the Netherlands (68,800 MT), South Korea (56,200 MT), Colombia (30,600 MT), Panama (29,300 MT), Peru (25,000 MT), and Guatemala (23,700 MT).
Optional Origin Sales: For 2016/2017, new optional origin sales totaling 60,000 MT were reported for unknown destinations. Sales totaling 118,000 MT were switched from unknown destinations to Japan. Options were exercised to export 114,100 MT from Japan to other than the United States. Decreases totaling 3,900 MT were reported for Japan. The current outstanding balance of 345,000 MT, is for unknown destinations (280,000 MT) and Taiwan (65,000 MT).
Export Adjustments: Accumulated exports to Niger were adjusted down 16,000 MT for week ending October 13, 2016. The correct destination is Nigeria and is included in this week’s report.
Barley: No net sales were reported for the week. Exports of 200 MT were reported to Taiwan.
Sorghum: Net sales of 300 MT for 2016/2017 resulted as increases for China (57,500 MT, including 58,000 MT switched from unknown destinations and decreases of 500 MT) and South Korea (800 MT), were partially offset by reductions for unknown destinations (58,000 MT). Exports of 61,800 MT were reported to China (57,500 MT) and Mexico (4,300 MT).
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: The recent rally in corn futures will likely be supportive for DDGS as we approach the year’s end. Markets in recent weeks have observed buyers filling only near-term needs while waiting for corn’s harvest low to procure product. Now that corn futures have almost certainly achieved their harvest low buyers will begin covering beyond their near-term needs and deferred shipment prices will strengthen. Moreover, the rally in soybean meal will also be supportive to DDGS use in feed rations. On a per protein unit basis, soybean meal gained $0.10 this week while DDGS held relatively steady (declining a mere $0.04). If the soybean complex rally continues, DDGS will have opportunities to make inroads in some livestock rations.
Traders are reporting that the market does indeed have a firmer tone this week. U.S. prices for November delivery increased $9/ton this week with FOB Gulf prices climbing $11/ton. Canadian rail prices jumped $19/ton for November delivery and $24/ton for December this week. Current prices have sparked some value buying for U.S. Gulf shipments to Southeast Asia, and prices for shipment to Taiwan and the Philippines rose modestly this week.
Ethanol Comments: Ethanol margins are predominantly lower this week and incentivized plants to lower production by 7,000 barrels per day from last week, with production reaching 991,000 barrels per day. Ethanol stocks jumped 877,000 barrels this week (5 percent) even as gasoline consumption rose 749,000 barrels per day this week.
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 South Dakota posting the only weekly gains. Compared to this same week last year, the spread is roughly $0.40 higher in all reference markets.
- Illinois differential is $2.12 per bushel, in comparison to $2.29 the prior week and $1.68 a year ago.
- Iowa differential is $2.12 per bushel, in comparison to $2.29 the prior week and $1.68 a year ago.
- Nebraska differential is $2.08 per bushel, in comparison to $2.09 the prior week and $1.71 a year ago.
- South Dakota differential is $2.16 per bushel, in comparison to $2.09 the prior week and $1.74 a year ago.
7. Country News
Argentina: A corn production revival in this country is threatened by La Nina. This includes a $1.2 billion investment in port facilities in the port of Rosario by multinationals. (Reuters)
China: Adhering to old practices, China Grain Reserves Corp. will purchase nearly a half million tons of corn in Heilongjiang Province at 1,400 yuan/ton ($206), to prop up prices. The total production will slide 4.8 percent his year. (Bloomberg; Shanghai JCI)
India: The barley malt business has been robust due to the craft beer craze in the west but that has started to temper. Now the view is on India where beer consumption in rising. A European merchandiser is investing in local malting to take advantage of the trend. (Bloomberg)
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: We are in the peak of the U.S. fall corn, sorghum and soybean harvest, and domestic rail and barge transportation/logistics appear to be hitting on all cylinders. It is a bit amazing, yet refreshing to be where we are in a record harvest period and not experiencing higher domestic freight costs. Exports are very good for most crops and port capacity is handling the volumes quite well. There are vessel lineups, loading delays and long days worked, but no one is in crisis mode. The only exception to this would be those looking for additional storage capacity in the interior. Dry-Bulk ocean freight rates hit a bottom in February and have improved slightly since then, but the summer rally in rates seems to be losing steam. Even though rates hit bottom and have bounced back a bit, things are still desperate for vessel owners and we remain far from a true recovery.
Just this week I’m hearing analysts project that it could be 2019 or 2020 before things improve for the Dry-Bulk sector. I would not buy any stocks in these companies just yet. The container line markets seemed to have hit at least a temporary bottom this summer, and have bounced up $150-$200/container over the last two-three weeks. However, I’m not hearing anyone suggest that things cannot – or will not – get worse again come February-March 2017. Many are still expecting more bankruptcies in this sector.
The charts below represent year-to-date 2016 versus January-December 2015 annual totals for container shipments to Taiwan.