Outlook: A fair number of U.S. farmers remain oblivious to the potential downside on prices. They are hoping for a rebound from the current slump. After all, land values and cash rents remain relatively stable. Although USDA could add a bullish influence in March by reworking the 2009 corn crop production number lower a little lower, thus strengthening price, there is also the potential for continued lower drifting. Any significant change in current price direction will require some dynamic event, like a late season reversal in South American crop prospects, or a spike in world economic growth. Neither is likely. The “race for acres” is a dampened fight under the current supply/demand scenario. The bottom of the corn market awaits the removal of more long positions.
CBOT MARCH CORN FUTURES
Current Market Values:
U.S. WEATHER/CROP PROGRESS
U.S. Drought Monitor Weather Forecast: Through February 1, a storm system will track eastward out of the Southwest across the south-central Plains, Southeast, and off the Atlantic Coast, bringing moderate to heavy precipitation to the southern tier of States. Heavy snow may fall on the southern Rockies, south-central Plains, north Delta, Tennessee and lower Ohio Valleys, and mid-Atlantic, with a band of freezing rain possible in the Red River Valley of Texas and Oklahoma. Heavy rains should occur to the south of the snows. A weak Pacific system will bring light precipitation to the Northwest. Dry weather should prevail in the southern California and the North-Central States. Subnormal temperatures will envelop much of the lower 48 States during this period.
The forecast from February 2-6 calls for enhanced odds of above-normal precipitation in California and the Great Basin, from the northern Great Plains to the eastern Great Lakes Region, and along the Gulf and Atlantic Coasts States, including southern Texas. Subnormal precipitation is expected in the central Plains and southern Rockies. Unseasonably cold weather is forecast for the Great Basin, Four Corner Region and High Plains, while above-normal readings should occur in the Pacific Northwest, western Great Lakes Region into lower New England, and along the eastern Gulf. Follow this link to view current U.S. and international weather patterns and the future outlook: Weather and Crop Bulletin.
U.S. EXPORT STATISTICS
Corn: Net sales of 902,300 MT for delivery in 2009/10 were down 44 percent from the previous week, but up 17 percent from the prior 4-week average. Increases were reported for unknown destinations (278,000 MT), South Korea (186,300 MT), Egypt (110,300 MT, including 50,300 MT switched from unknown destinations), Japan (87,900 MT, including 24,600 MT switched from unknown destinations and decreases of 7,200 MT), Mexico (71,600 MT), Colombia (49,100 MT), and Canada (21,300 MT). There were no sales reported for delivery in 2010/11. Exports of 531,800 MT were down 36 percent from the previous week and 33 percent from the prior 4-week average. The primary destinations were Japan (215,500 MT), Mexico (111,800 MT), Egypt (50,300 MT), Taiwan (39,900 MT), Canada (35,500 MT), and Colombia (31,200 MT).
Barley: Net sales of 200 MT were for Taiwan. There were no exports reported during the week.
Sorghum: Net sales of 221,400 MT--a marketing-year high--were up noticeably from the previous week and from the prior 4-week average. Increases were reported for Mexico (150,400 MT), Japan (35,800 MT), and unknown destinations (35,200 MT). Exports of 68,700 MT were to Mexico (41,000 MT) and Japan (27,600 MT).
FOB
DISTILLER'S DRIED GRAINS WITH SOLUBLES (DDGS)
DDGS prices are lower following the petroleum and corn price trends this week. The margins at ethanol plants have been positive, which is evidence for increased production. Logistics still remain a challenge for both rail and exports but they should improve as the weather begins to warm up. Export and domestic shipments for February are quickly moving nearer the “sold out” position for that delivery period.
Domestic: Demand is steady but logistics are not helping equalize prices nationwide. There are discounts in prices but only near the ethanol plant truck markets due to a lack of rail capacity for moving it out of state. Tyson has been in the market but in smaller tranches of 15-20,000 mt this week.
Exports: Export demand has been steady, though we hear on the container side that Hanjin has pulled five vessels out of service to Seattle, Washington. This, plus a general rate increase in Mid-February by all container lines, is limiting availability for February delivery in container. Bulk business has been slow this week as far as we know—except for an inquiry of 5,000 mt to Mexico by one major exporter.
COUNTRY NEWS
Argentina: It has been dry but rainfall is expected next week to give the crop a boost. Some say that it could increase to 20 MMT (the current estimate is 18 MMT), which means 10 MMT in exports, though only 3 MMT of export licenses have been released at this juncture.
Brazil: Feed wheat is selling at $150/MT FOB, which means $110/MT for Uruguay, but its sellers are awaiting a better price.
India: With continued concerns about the impact of food inflation (16.8 percent) on the poor, the government is adding 3.6 MMT of wheat and rice to the food aid package. However, dairy prices remain pressured higher and with corn at $240/MT, chicken prices are at record levels for the region.
Russia: Though the dollar got stronger versus the ruble there was no change in barley prices. Ruble depreciation is the hope of sellers. Corn is bullish regardless. With tight stocks, intervention selling and increased demand, internal prices hit $172.80/MT.
Ukraine: Feed wheat prices added $1 to reach $165-170/MT FOB Black Sea; barley is flat and corn added $1 to reach $190-195/MT FOB Black Sea.
OCEAN FREIGHT MARKET AND SPREADS
OCEAN FREIGHT COMMENTS
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: Late last week, freight markets tried to muster a small rally. But recent rallies have been difficult to maintain and the overall trend seems to be lower. World freight markets continue to be inverted and, as time progresses, the forward price levels are becoming today’s values. This seems to be a buyer’s, rather than a seller’s, market. Continued concerns over the tightening of credit markets in China and the slowness of the financial recovery in the West will weigh on freight values.
Over the last two weeks we’ve seen a 14-15 percent drop in the Baltic Panamax freight index and a related but lesser drop in the physical markets. With the physical markets lagging the index values, there should be further room for downward pressure in the physical markets. With the current market inverse and soft market tone, April-May-June values are a good $3-4.00/mt discount to the spot and 30-day markets.
As a general freight market reference and indicator; below is a recent history of freight values for Cape size vessel shipments of Iron-Ore from Western Australia to China:
Four weeks ago: $12.50-$12.90
Three weeks ago: $12.25-$12.50
One week ago: $12.00-$12.25
This week $11.00- $11.50 (Down $1.00/mt from last week).
In dollar terms, the current spot and 30-day U.S. Gulf to Japan Panamax market is currently near $67.50/mt. The 30-day Panamax rates from the PNW to Japan are approximately $38.00/mt. The PNW/Gulf freight spread to Asia is approximately $29.50/tonne (.75/bushel for corn and .80/bushel for wheat and soybeans)
* Fob vessel Soybeans offers are thin from the PNW. It is therefore extremely difficult to determine an accurate soybean market spread to the US Gulf. PNW fobbing capacity for January and February is largely committed and therefore tight. Corn quality is a significant challenge for all vessel loaders.
INTEREST RATES
