Market Perspectives May 25, 2017

1. Chicago Board of Trade Market News

Week in Review

Outlook: July corn futures decisively moved one direction this week – sideways. Poor planting weather and ample global supplies have trapped the market’s action and, unfortunately, plenty of ambiguity exists between these two factors.  

The latest Crop Progress report from USDA showed the U.S. corn crop even with the five-year average planting progress (85 percent). Traders viewed the report with both relief and skepticism; relief that planting is making progress and skepticism from knowing a large portion of those “planted” acres will be replanted. Farmers managed to get the corn crop in the ground, despite the cool, rainy weather plaguing the Midwest this year. The remaining question is how much seed is stillin the ground and how much has been washed out. 

Seed companies are reporting that farmers are aggressively inquiring about and procuring additional seed for replanting. Some have called this year “historic” regarding the acres that will be replanted this year. Farmers in the Western Corn Belt are reporting some operators are preparing to replant for a second time. With farm economics in their current state, it’s tough to imagine how this will be profitable and expectations are that corn acreage estimates will fall in the June WASDE. 

This week’s market fireworks largely came last Thursday when news about a political scandal in Brazil broke. Brazil’s President was implicated in a scandal between the world’s largest meat packer, JBS, and a Brazilian senator. The news rocked currency markets and the Brazilian real plunged 8 percent in the following day’s trading. The currency devaluation was great news for Brazilian farmers who received an instant price increase and sold 0.5-1 MMT of corn. The selling sent Chicago futures 5 cents lower for the day. 

July corn’s technical indicators are still a jumbled mess. The moving averages, stochastics, and RSI are all nicely (and uselessly) pointing sideways and the market is entrenched in range-bound trading. Major support lies at $3.64 while resistance is only 11 cents higher at $3.75. The weather will continue to drive the market but a truly bullish case won’t develop unless the weather turns colder and wetter – or prevent-plant reports increase. Given the weather risks already present, bears have little additional selling appetite and it will take a strongly bearish report to turn the market lower.  

2. CBOT Corn Futures

CBOT July Corn Futures

CBOT Corn Futures Graph

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

U.S. Crop Planting Progress

U.S. Drought Monitor Weather Forecast: A storm system in the vicinity of the central Appalachians on Thursday will drift northeastward, reaching coastal New England by May 26. Meanwhile, a low-pressure system will cross southern Canada, with a disturbance along the storm’s trailing cold front affecting the nation’s mid-section during the Memorial Day holiday weekend. On Friday, soaking rains will end across the Northeast, while showers and thunderstorms will develop from the northern Intermountain West into the lower Midwest. Rain will quickly spread eastward and return to parts of the southern and eastern U.S. during the weekend. Elsewhere, mostly dry weather during the next 5 days will be limited to just a few areas, including California and the Southwest. 

The NWS 6- to 10-day outlook for May 30-June 3 calls for the likelihood of below-normal temperatures from the central and southern Plains to the western slopes of the Appalachians, while warmer-than-normal weather should prevail along the Atlantic Seaboard and across the northern High Plains and much of the West. Odds will be tilted toward near- to above-normal rainfall across most of the country, but drier-than-normal conditions can be expected from the Pacific Northwest into the upper 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

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

Corn: Net sales of 457,200 MT for 2016/2017 were down 35 percent from the previous week and 33 percent from the prior 4-week average. Increases were reported for Japan (227,400 MT, including 156,300 MT switched from unknown destinations and decreases of 5,500 MT), Mexico (68,600 MT, including decreases of 2,600 MT), Taiwan (67,000 MT, including 65,000 MT switched from unknown destinations), South Korea (62,800 MT), and Bangladesh (53,400 MT, including 50,000 MT switched from Nigeria). Reductions were reported for unknown destinations (120,000 MT), Nigeria (50,000 MT), and the Dominican Republic (3,200 MT). For 2017/2018, net sales of 500 MT were reported for unknown destinations. Exports of 1,052,400 MT were down 32 percent from the previous week and 14 percent from the prior 4-week average. The primary destinations were Japan (464,900 MT), Mexico (348,600 MT), Taiwan (70,300 MT), Bangladesh (52,900 MT), and Peru (42,500 MT). 

Optional Origin Sales: The current optional origin outstanding balance for 2016/2017 of 191,000 MT is for unknown destinations (123,000 MT) and South Korea (68,000 MT). The current outstanding balance for 2017/2018 of 58,000 MT is for unknown destinations. 

Barley: There were no sales or exports reported during the week. 

Sorghum: Net sales reductions of 3,200 MT for 2016/2017 resulted as increases for China (49,200 MT, switched from unknown destinations) and Mexico (600 MT), were more than offset by reductions for unknown destinations (53,000 MT). Exports of 49,400 MT were down 41 percent from the previous week and 47 percent from the prior 4-week average. The destinations were China (49,200 MT) and Mexico (200 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: The market has strengthened from what was a flat start to the week. Prices increased in Chicago; Savannah, Georgia; and the barge market. Barge prices were $2/MT higher this week and Chicago prices were $5-10 higher as well. FOB Gulf prices increased this week as international demand picked up.  

Merchandisers are reporting June FOB Gulf shipments are becoming increasingly tight. Several are confirming trades in the low $160s and note that quotes below $155 are increasingly unrealistic. Steady/stronger demand and the final impacts of the spring maintenance closures are responsible for the market tightness. 

Southeast Asian buyers were active purchasers this week following weeks of subdued inquiries. Traders sold loads to Korea for June shipment and Malaysia for LH June/FH July shipment. Shipments to Korea are up 83 percent YTD while Malaysia has imported 3 percent more DDGS. 

Merchandisers are reporting increasing inquiries from Bangladesh, which is a small but growing market for U.S. DDGS. In 2016, the U.S. shipped 38,900 MT to Bangladesh, which was a 579 percent change from the prior year. So far in 2017 (latest data through March), U.S. DDGS exports to Bangladesh have totaled 17,800 MT, up 14 percent from this time last year. 

Higher DDGS prices boosted the relative price of DDGS to corn, moving the market to 85 percent of cash corn values and 96 percent of FOB Gulf corn. DDGS carry a $2.01 per-protein unit cost advantage against Kansas City soybean meal and a $0.94 per-protein unit advantage against FOB Gulf soybean meal. Both figures are down from the prior week. 

7. Country News

Brazil: Consultancy firm AgRural says that the winter safrinha corn crop is producing larger than expected yields. Soybean & Corn Advisor had increased its projection for Brazil’s total 2016/17 corn production to 93 MMT, but AgRural has boosted its guess of the safrinha crop by 3.5 percent and the prior summer crop by nearly 2 percent to reach a total of 94.4 MMT – a 42 percent increase in production year on year. (Bloomberg) 

China: A total of 7 MMT of 2013 harvested corn is being offered this week at auction from government reserves. Last week, the government sold nearly 1 MMT of 2011 and 2012 crop corn at 1,225 yuan/MT (US$177.85), which is a 25 percent discount to the September Dalian futures contract. It sold another 3.56 MMT at 1,409 yuan/MT. The price of corn on the Dalian remains under pressure. 

Meanwhile, the National Meteorological Service says that recent rains have eased drought conditions in northern areas, and this will help farmers to replant crops. But, others contend that high temperatures will cause the drought to persist and the government recommends the planting of drought tolerant crops instead of corn. (Reuters; Bloomberg) 

France: The French corn growers’ group AGPM says that beneficial rains and a slumping dollar is putting downward pressure on LIFFE futures prices. The euro value of corn was down 4 percent last week, the largest decline since 2015. Meanwhile, MDA agricultural weather forecaster Donald Keeney says that a return of dry, warm conditions will impose persistent dryness on the crops in France and Spain. (Bloomberg) 

South Africa: The yields being achieved by the continent’s largest corn producer, South Africa, is raising expectations that this year’s crop could reach 14.65 MMT, the second largest on record. The April forecast by the government’s Crop Estimates Committee called for 14.54 MMT. (Newsday; 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: It was another relatively quiet week in global Dry-Bulk markets. Quiet markets usually result in lower values, and this is how things played out this week. 

There have been additional market inquiries regarding grain from South America to Mexico but I have not seen any actual freight fixed. The pickup in South American farmer selling of soybeans has resulted in aggressive export marketing down there and should certainly lead to improved vessel demand. Sadly, for vessel owners this has not yet led to better freight prices.

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 YTD 2017 versus 2016 annual totals for container shipments to China.

Container Shipments 1
Container Shipments 2
Freight Chart 1
Freight Chart 2
Freight Chart 3

10. Interest Rates

Interest Rates