1. Chicago Board of Trade Market News
Outlook: The week’s most notable news for the corn market came Thursday as USDA announced the sale of 1.3 MMT of corn to Mexico. The sale included 845,000 MT during the 2017/18 marketing year and 510,000 MT for the 2018/19 marketing year. The report ranked #10 on USDA’s Top 10 Daily Export Sales report, with other sales to Mexico holding three of the top ten spots.
Beyond the large sale to Mexico, there was little to spark much interest in corn futures this week. Prices approached 2017 lows but did not fall much beyond previously established lows. Commercial buying became prevalent as corn neared its lows, which sent the market 5 cents higher over Wednesday and Thursday. Funds have not been influential in the market this week, paring back some short positions but lacking any reason to increase market exposure.
Ethanol has been a bright spot for corn this marketing year. Year-to-date production is up 4.1 percent, which is helping work off some of this year’s big supply. DDGS prices have regained early-2017 strength, leaving ethanol producers with breakeven or above margins.
From a technical standpoint, December corn is rangebound for yet another week. Fund activity is minimal and commercial firms are buying when prices are “cheap”. January soybean futures are presenting an interesting wedge formation, which is often followed by a sharp up- or downward breakout. Should January soybean futures gain momentum and move strongly in one direction, that movement could create sympathetic buying/selling in corn futures. Corn in and of itself looks relatively risk-free for now, but other markets could exert influence soon.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: During the upcoming 5-day period (November 2-6), a potent Pacific storm should drop decent precipitation (1-5 inches) on most of the Northwest, southward into central California and the Sierra Nevada, and eastward into parts of the central and northern Rockies. Light to moderate precipitation is expected in the lower Mississippi Valley northeastward into the eastern Great Lakes region and western New England. Little or no precipitation should occur in the Southwest, central and southern Plains, and the Southeast. 5-day temperatures will average well above-normal across most of the lower 48 States except for subnormal readings in the Far West and across the northern thirds of the Rockies and Plains and the upper Midwest. Well below-normal temperatures are expected in Montana and North Dakota.
During the 6- to 10-day period (November 7-11), odds favor above-median precipitation along the Pacific Northwest Coast, from the middle Mississippi and Ohio Valleys eastward into the Northeast. Probabilities for below median precipitation are greatest in the Great Basin, northern Rockies and Plains, upper Midwest, and along the Gulf Coast States. Above-normal temperatures are likely from the Four Corners region eastward to the southern and middle Atlantic regions, while a tilt toward subnormal temperatures were found in the Far West and across the northern thirds of the Rockies, Plains, and 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 811,400 MT for 2017/2018 were down 37 percent from the previous week and 33 percent from the prior 4-week average. Increases were reported for Japan (222,700 MT, including 73,300 MT switched from unknown destinations and decreases of 3,000 MT), Spain (198,000 MT), Peru (112,900 MT, including 45,000 MT switched from unknown destinations), Mexico (61,800 MT), and Brazil (60,700 MT). For 2018/2019, net sales of 90,000 MT were reported for Mexico. Exports of 598,300 MT were primarily to Mexico (221,400 MT), Japan (203,100 MT), Peru (73,300 MT), Colombia (41,500 MT), and Costa Rica (24,700 MT).
Optional Origin Sales: For 2017/2018, new optional origin sales of 68,000 MT were reported for South Korea. The current optional origin outstanding balance is 236,000 MT is for unknown destinations (168,000 MT) and South Korea (68,000 MT).
Barley: Net sales of 100 MT for 2017/2018 were reported for South Korea. There were no exports reported during the week.
Sorghum: Net sales of 284,000 MT for 2017/2018 were up noticeably from the previous week and from the prior 4-week average. Increases were reported for China (208,000 MT), unknown destinations (66,000 MT), and Japan (10,000 MT). Exports of 2,300 MT were down 97 percent from the previous week and 95 percent from the prior 4-week average. The destinations were Mexico (1,700 MT) and China (600 MT).
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: U.S. DDGS prices are steady this week with little to move the market. Barge CIF NOLA prices are unchanged at $163.50/MT as both the freight and DDGS markets stabilized further this week. FOB NOLA prices fell $1/MT to $176/MT, but are $6/MT higher than this time last year.
U.S. FOB ethanol plant DDGS are prices at 38 percent of Kansas City soybean meal values and 102 percent of cash corn, both ratios working their way 1 percent higher this week due to weakness in soybean meal/corn. The per-protein unit cost of DDGS is $1.72 lower than soybean meal, $0.28 higher than this time last year. Still, DDGS remain very competitive in feed rations and this week’s pricing stability should encourage further near-term consumption.
Prices for 40-foot containers to Southeast Asia rose $2/MT this week on the back of rising freight rates. Rates for product destined for China fell this week, giving back almost all of last week’s gain. Prices for DDGS destined for other Southeast Asian destinations were broadly higher, with $4-5/MT price increases for Indonesia and Malaysia.
With ethanol production remaining well above the 1,000 barrel/day mark, DDGS supplies should be ample in the near-term. Demand remains adequate to prevent supplies from overwhelming the market and the coming week should feature further pricing stability.
7. Country News
China: Andy Shissler of S&W Trading says that 70 percent of China’s corn stockpile is “past its date” and the government may have to give a subsidy payment to farmers to get them to plant corn in 2018. The State Administration of Grain said it will increase its purchases of newly harvested corn as rains threaten the crop in the south. It may also expand storage capacity. (Bloomberg; Reuters)
Egypt: There is an increasing interest in corn from Ukraine. Traditional purchases from Argentina and Brazil are 50 to 60 KMT, requiring hedging and storage. Instead, corn can be bought at a flat price from Ukraine, which delivers it in small (5 to 10 KMT), more easily managed amounts. (Platts)
Mexico: Despite threats to buy corn from South America, Mexico purchased 1.36 MMT of U.S. corn, the fourth largest ever purchase amount and the tenth biggest corn sale to any country. (Bloomberg)
World: The International Grains Council boosted its projection for global grain production by 6 MMT with 83 percent of the increase attributed to larger U.S. production of corn. The organization also increased its prediction for global grain disappearance by 8 MMT, largely due to increased production of corn-based ethanol by China. (IGC)
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: I know I should not be so amazed by how many hundreds of points the Baltic Dry-Bulk indices move per day and per week, but I am. This is not the corn or soybean market where weather and other ever-changing factors impact things on a daily basis. The fundamentals in the ocean freight markets do not change in short periods of time. So, what the heck creates these significant daily moves? The obvious answer is the speculative paper trading that occurs; for some reason, trader optimism springs eternal. I say take your profits and run, but this is why physical markets do not move in lockstep with the Baltic indices and why charterers of physical vessels must be wary of the Baltic market movements.
In the end things will balance out, but it is the volatility that causes heartburn. What goes up, must come down. This week was a quiet week in freight markets and therefore a bit of a down market. East Coast-South American demand was lacking. U.S. Gulf grain cargo demand was not robust. On the container market side, from Alphaliner’s Hua Joo Tan: New TEU capacity up 9 percent vs. 6-7 percent growth. No longer sees industry recovery in 2019 because of volume of new vessel capacity.
The charts below represent YTD 2017 versus 2016 annual totals for container shipments to Japan.