Market Perspectives January 4, 2018

1. Chicago Board of Trade Market News

Week in Review

Outlook: March corn refuses to leave the safety of its narrow range around $3.50/bushel. Two holiday-shortened trading weeks in a row, combined with little fresh news, have left the contract decidedly range bound. The holidays created a lack of fundamental news and next week’s January WASDE isn’t likely to show major changes to the U.S. corn balance sheet. Until some new information is gathered, corn seems relegated to its current sideways pattern. 

Brazilian corn prices have been rising steadily in the past few weeks, giving U.S. exporters more opportunities to increase sales. Today’s prices show FOB NOLA corn as cheaper than Paranagua, Brazil and Argentina Upriver FOB offers, thought slightly higher than Santos, Brazil paper prices. The USDA will release its weekly Export Sales report on Friday this week, one day later than usual due to the New Year’s holiday. Monday’s Export Inspections report from the USDA showed 26.9 million bushels exported, a bearish amount that keeps marketing year-to-date totals down 38 percent from last year. The USDA’s balance sheet currently projects a 16 percent reduction in exports, meaning exporters will have to get aggressive in 2018 to meet the agency’s projection. 

Weekly ethanol production fell 5 percent this week as the cold weather across the U.S. boosts natural gas costs and ethanol production costs. Ethanol stocks increased 3 percent as the cold weather limits driving and gasoline consumption. Ethanol has been a bright spot for corn demand this year and this week’s production decrease is likely just a blip on the radar. 

From a technical standpoint, March corn is heading sideways with neither upward nor downward momentum. The 40-day moving average has been likened to a “line in the sand” by some traders, with corn unwilling to close above this chart point. Still, cash corn prices are rising as is basis, a sign of commercial buying and of possible futures price increases ahead. Funds still hold a large short position in corn, and should something spark a covering of this position, the market could pop higher quickly. But, until that happens, March corn futures are hovering near $3.50 until further notice. 

2. CBOT Corn Futures

CBOT March Corn Futures

CBOT Corn Futures

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

U.S. Drought Monitor Weather Forecast: A rapidly-intensifying storm system near the Atlantic Seaboard will produce wind-driven snow from parts of the Mid-Atlantic into the Northeast. Substantial snow- and wind-related impacts are expected in New England, as well as coastal cities such as Savannah, Georgia, and Charleston, South Carolina. In the storm’s wake, late-week temperatures will again plunge across the Midwest and Northwest. However, temperatures will rebound to above-normal levels by Sunday in all areas west of the Mississippi River. In the middle and lower Mississippi Valley and environs, some rain or freezing rain could precede the warmer weather. Elsewhere, periods of rain and snow will affect northern California and the Northwest, while dry weather prevails across the central and southern Plains. The NWS 6- to 10-day outlook for January 9-13 calls for above-normal precipitation across much of the nation, with drier-than-normal weather confined to the nation’s southern tier save for the Southwest. Colder-than-normal conditions will linger in the upper Midwest, while near- to-above-normal temperatures prevail elsewhere, with the greatest likelihood of abnormal warmth from the Rockies to the Pacific Coast. 

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 Inspections
USDA Grain Inspections for Export

Note: Due to the Monday, January 1 holiday, weekly U.S. export sales will be published on Friday, January 5. Updated U.S. export sales will be next published in the January 11, 2018 edition of Market Perspectives.

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: DDGS prices are steady/higher this week as ethanol production declines in the U.S. limit supplies and as international demand recovers from its holiday lull. FOB ethanol plant DDGS are $2/MT higher this week, as cold weather across the Midwest increases use in feed rations and as last week’s 5 percent decrease in ethanol production limits supplies. Soybean meal values are steady after the holidays and FOB ethanol plant DDGS prices are 46 percent of Kansas City soybean meal. Domestically, DDGS retain a $0.79 per-protein unit cost advantage over cash soybean meal. 

Internationally, FOB Gulf prices are steady on holiday-reduced demand. The average price for January shipment is $203/MT with February shipments $3/MT lower. Prices for March shipment are just under $200/MT as DDGS supplies should increase heading into the spring. Prices for 40-foot containers to Southeast Asia are $226.5/MT, $3 above the pre-holiday (December 21, 2017) weekly average. Merchandisers are reporting prices to Vietnam are the strongest of Asian destinations, rising $6/MT from December 21.

7. Country News

China: China will use 8.9 MMT of sorghum in 2017/18, a majority (5 MMT) of which will come from imports. Most sorghum goes into animal feed, offsetting the drop in DDGS imports, but an increasing amount is being used to produce the alcoholic drink baijiu. (WorldGrain) 

Black Sea: UkrAgroConsult says that Ukraine farmers managed to harvest more of their production ahead of winter this crop season, but Russian farmers only harvested 86 percent of the projected area by December 21. This means that overall corn production will be down 5-6 percent from a year earlier and exports could decline by 10 percent compared to last season. ( 

The Russian State Statistics Service says that all the barley has been harvested but 14 percent of the corn still remains in the field. According to the USDA, average barley yields in Russia for the 2017-18 marketing year are 19 percent higher than in 2016-17. (World Grain) 

Uganda: East African grain traders are hurrying to buy Ugandan maize at about half the international price. Uganda has had a surplus crop at the same time neighboring countries are experiencing shortages due to drought. Traders pay as little as $180/MT in Uganda and flip it into the Kenyan market for up to $430/MT. The market is distorted due to the region’s common market at the same time Uganda is paying a premium for maize going into the Strategic Grain Reserve. (AllAfrica)

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: This week the Baltic Dry-Bulk Index suffered its biggest single day fall in close to four years. 

In Q4 of 2017, vessel owners saw a market reversal and improved cargo demand with resulting higher market rates. This caused market players to get a bit overly optimistic about the prospects for 2018, especially considering that the first quarter of any year is usually the slowest period. So, here we are in Q1 of 2018 and things are not looking quite as robust. Markets have had to give a little back and, from a cargo demand perspective, we will likely see a fairly quiet couple of months before demand kicks in again. I do expect to see Dry-Bulk rates climb as we move farther into 2018, but we will have to go back down a little before we experience a further recovery in rates.

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 2017 annual totals 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