Market Perspectives August 3, 2017

1. Chicago Board of Trade Market News

Week in Review

Outlook: More favorable weather forecasts left traders eager to unwind long positions. December corn futures have fought off their seasonal tendency to decline during late summer for quite some time, and good weather was the catalyst to start the process. Some supply concerns remain, but substantial old crop stocks are applying bearish pressure to the market. 

USDA’s crop conditions report showed 61 percent of the U.S. corn crop rated as good or excellent, 1 percent lower than the prior week and below the 5-year average of 69 percent. The weather so far virtually ensures USDA will lower its yield estimates in the August WASDE, but by how much remains the million-dollar question. Earlier this week, private forecasters put the U.S. yield at 162.8 BPA, implying production of 13.59 billion bushels. A separate group pegged the yield just over 165 BPA. The market seems to be adopting the less-bullish 165 BPA figure as its working number until next week’s WASDE report. 

Export sales were bullish for corn this week as exporters sold 1.4 million bushels of old-crop corn, above the 1.3 million that were needed this week. More importantly, export shipments reached 42.9 million bushels, well above the 40.7 million needed this week to reach USDA’s projections. Right now, YTD bookings are 2.218 billion bushels, slightly below USDA’s forecast of 2.225 billion. Given this, unless Brazilian prices skyrocket and the U.S. export program picks up substantially, only minor changes will be made to USDA’s old-crop export forecast in the August WASDE. 

From a technical perspective, December corn is oversold and hovering above key support at $3.74. It is unlikely the contract will close below this point until USDA issues its August WASDE next week. There is simply too much yield risk perceived by the market to push prices lower. However, should the WASDE report more bearish than expected yields, the next downside technical target is $3.65 ¾, and then the life-of-contract low at $3.58 ½. On the upside, minor resistance lies at $3.90, $3.98, and $4.07 before major resistance is found at $4.17 ½.  

2. CBOT Corn Futures

CBOT December Corn Futures

CBOT Corn Futures Graph

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

U.S. Crop Condition

U.S. Drought Monitor Weather Forecast: In the two days since the Tuesday morning cutoff time for this week’s map, monsoon showers and thunderstorms have continued to bring precipitation to the southwestern U.S. For August 2-7, the National Weather Service’s Weather Prediction Center forecasts rainfall across many of the drought-afflicted regions of the country. The highest totals, up to 3 inches, of rain are forecast for Oklahoma and the upper Midwest. One to 1.5 inches is forecast for the eastern Great Plains and much of Texas, while the western half of the Great Plains, west and south Texas, and the long-term drought areas in southern California and Arizona could see about a half inch. The Pacific Northwest and western Montana are expected to see little or no precipitation and continued high temperatures ranging from 5 to 15 degrees above normal. Much of the rest of the country is expected to experience cooler than normal conditions. 

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 36,700 MT for 2016/2017--marketing-year low--were down 60 percent from the previous week and 83 percent from the prior 4-week average. Increases were for China (93,400 MT, including 65,000 MT switched from unknown destinations), Colombia (43,300 MT, switched from unknown destinations), Mexico (31,200 MT), Guatemala (25,800 MT, switched from unknown destinations), and Honduras (12,800 MT, including 5,400 MT switched from El Salvador and decreases of 700 MT). Reductions were reported for unknown destinations (198,500 MT) and Canada (800 MT). For 2017/2018, net sales of 438,300 MT were reported primarily for Mexico (176,200 MT), Peru (97,200 MT), and unknown destinations (62,300 MT). Exports of 1,090,700 MT were up 22 percent from the previous week and 11 percent from the prior 4-week average. The primary destinations were Mexico (263,600 MT), Japan (250,800 MT), Colombia (152,600 MT), South Korea (130,900 MT), and China (92,200 MT). 

Optional Origin Sales: The current optional origin outstanding balance for 2016/2017 of 122,000 MT is for South Korea (68,000 MT) and unknown destinations (54,000 MT). The current outstanding balance for 2017/2018 of 112,000 MT is for unknown destinations. 

Barley: Net sales of 500 MT for 2017/2018 were up noticeably from the previous week, but down 69 percent from the prior 4-week average. Increases were reported for Taiwan. Exports of 1,100 MT were reported to Japan (800 MT) and Taiwan (300 MT). 

Sorghum: Net sales of 162,000 MT for 2016/2017 resulted as increases for China (220,000 MT, including 111,000 MT switched from unknown destinations and decreases of 2,900 MT), were partially offset by reductions for unknown destinations (58,000 MT). For 2017/2018, net sales of 60,000 MT were reported for China. Exports of 168,000 MT were up noticeably from the previous week and from the prior 4-week average. The destinations were China (166,400 MT) and Mexico (1,600 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: DDGS prices were firm in early trading this week but softened toward the latter half. Merchandisers are reporting international buyers are more interested in deferred shipments while the majority of U.S. production is sold through September. The barge values that underpinned DDGS’ move higher this week have stabilized, leaving merchandisers less room to increase asking prices.  

Domestically, DDGS prices are slightly higher this week and are priced at 98 percent of cash corn values. DDGS prices are 37 percent of Kansas City soybean meal values, leading to a $1.82 per-protein unit cost advantage over soybean meal. Production is matching DDGS demand for now and sideways trade is expected going forward, unless corn or soy-complex futures make an outsized move. 

7. Country News

Brazil: The national supply company Conab said that subsidies would be offered to farmers to compel them to sell 752 KMT of corn at below the government’s set minimum price. A total of 11 MMT of corn will be subsidized in this manner this season. (Bloomberg) 

China: The National Grain Trade Centre reports that 1.5 MMT of corn was sold from state reserves this past Friday (July 28) and 3.47 MMT of corn will be offered by Sinograin this week. Only 12 percent of the 600 KMT offered for sale on August 3 sold and averaged a price of 1,439 yuan/MT ($214.03). 

The National Grain and Oils Information Centre says that 10 MMT of corn could move into the market in August to get ahead of newly harvested corn becoming available in September. (Bloomberg) 

Colombia: USDA reports that Colombia bought 150 KMT of corn for delivery this marketing year. (Reuters) 

Kenya: Kenya’s Agriculture Ministry disputes a report from the Regional Agricultural Trade Intelligence Network that Kenyans are paying 5,849 shillings per 90-kilogram bag of corn. The Ministry insists that the price is 35 percent less than that ahead of Kenyans going to the election polls on Tuesday of next week. (Business Daily) 

United Kingdom: Liquid biofuels will still be needed despite the government’s ban on new diesel and petrol cars by 2040. There are still parts of the transport sector (aviation, shipping) that cannot be electrified. Additional, hybrid vehicles have proved more successfully than purely electric ones. (The Edinburgh Reporter) 

Separately, distillers in Scotland are hailing a new malt barley variety called KWS Sassy that is destined to replace the Concerto variety. KWS Sassy is quick to establish, shows good tillering, has a 12 percent higher yield and quality is consistent or better. (Food Navigator)

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: Last week we saw a small selloff in ocean freight rates. This week the market remained thin and continued to back down slightly. The trade is attributing this softness to “profit taking.” We need to remember that there is a fair amount of paper trading that takes place and there are technical traders who just play the market momentum up or down. The physical side of the market was fairly quiet this week. Q4 2017 Panamax time charter rates are hovering around $9,700-$10,200/day but 2018 is going for just $9,200/day. It is therefore difficult to think that we will see any major market moves in 2017 or the first half of 2018.

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 mainland China.

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

10. Interest Rates

Interest Rates