Outlook: There is a division of thought over whether the U.S. will achieve its forecast two billion bushels of corn exports. Despite recent solid export sales, there is the prediction that USDA reduces it to 1.8-1.9 billion bushels. Analysts say that higher quality corn will get exported and some low quality corn may possibly be carried over for blending next year. Cash bids are strong, particularly for quality corn, whereas ethanol plants buy on a weight basis so that it is the farmer taking the loss on light test weight corn. U.S. EPA’s decision this week on the Renewable Fuel Standard largely keeps corn ethanol in play.
Farmers are in a bind; cash bids between March and June average 20-22 cents, suggesting they hold their corn through the current trough, but that risks quality deterioration and thus discounts down the road. Most fundamental information is already known and so it will take some external development (e.g. currency valuation) to make any change. Longer term, the Obama Administration’s proposed prohibition on proprietary trading by banks would likely shrink volume and liquidity in commodity markets.
CBOT MARCH CORN FUTURES
Current Market Values:
U.S. WEATHER/CROP PROGRESS
U.S. Drought Monitor Weather Forecast: Through February 9, an active southern storm track is expected to continue, bringing wet weather to the area from New Mexico to the Southeast to the Mid-Atlantic. From Thursday into Saturday, a storm system is expected to move from Texas to the Carolina coast. Precipitation totals are expected to be greater than 1.0 inch from coastal Texas to southern New Jersey, with the northern extent being frozen or freezing precipitation.
By 8 February, another low-pressure is expected to develop across northern Mexico and bring precipitation to the southern plains yet again. Little to no precipitation is expected across the Northern Rockies and Northwest, which should be monitored as El Niño conditions typically favor dryness in these regions. 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 923,200 MT for delivery in 2009/10 were up 2 percent from the previous week and 15 percent from the prior 4-week average. Increases were reported for Mexico (376,800 MT), Japan (234,700 MT, including 109,500 MT switched from unknown destinations and decreases of 42,300 MT), unknown destinations (89,700 MT), Taiwan (69,300 MT, including 25,400 MT switched from Japan and decreases of 2,000 MT), Peru (40,600 MT), Egypt (32,200 MT, including 28,900 MT switched from Taiwan), and Colombia (26,500 MT). Net sales of 3,000 MT for delivery in 2010/11 were for Guatemala. Exports of 1,123,000 MT were up noticeably from the previous week and 59 percent from the prior 4-week average. The primary destinations were Japan (415,800 MT), South Korea (230,200 MT), Mexico (181,500 MT), Egypt (114,900 MT), Colombia (30,500 MT), and Panama (27,600 MT)
Barley: Net sales of 100 MT were for Mexico. There were no exports reported during the week.
Sorghum: Net sales of 78,700 MT were for Mexico (60,500 MT) and Japan (26,300 MT, including 13,100 MT switched from unknown destinations). Decreases were reported for unknown destinations (8,100 MT). Exports of 89,300 MT were to Japan (45,600 MT) and Mexico (43,700 MT)
FOB
DISTILLER'S DRIED GRAINS WITH SOLUBLES (DDGS)
DDGS prices moved lower this week by $5-10.00 mt depending on the delivery location. Demand is steady but prices bid by buyers are lower. Production of DDGS is steadily increasing, with new plants starting and other plants that had been closed are re-opening. The lack of container and rail car availability, combined with increased production and positive ethanol margins, seem to be weighing on the price of DDGS for the near future
Domestic: The news in the domestic market this week has been that Tyson is tendering for about 100,000 tons of DDGS for the next few months delivery. It was reported that they have bought about 90,000 tons of that tender so far.
Exports: Bulk shipment export interest has been good, with three to four bulk traders actively providing bids for barges CIF Nola this week. However prices are still moving lower, with March-April price levels at a discount to February delivery. There is some talk that the lack of containers for export out of Chicago will put pressure on the Bulk Barge prices CIF NOLA. Demand from Mexico has been steady this week
COUNTRY NEWS
Argentina: The quality of the corn is considered excellent and with the government granting another 3 MMT in licenses, activity is brisk with FOB sales around +60 over March and +30 over May. C&F was around +160-170 over May.
Brazil: Still quiet as the government holds its powder on export subsidies and the market remains priced above world levels.
India: There were protests over government approval of GM eggplant. Meanwhile, higher feed prices are forcing higher dairy prices, which upsets consumers.
Russia: Feed wheat, barley and corn prices slid a little but corn strengthened a bit in the Black Sea area. As of 1 February, the government began offering intervention for 2008 corn at $1440.51/MT. The government still plans to make Russia the world’s largest grain exporter.
Ukraine: Feed wheat ($164-166/MT FOB), barley ($139-141/MT FOB) and corn ($180-190/MT FOB Black Sea) prices have all been falling, in part by the rising hryvnya and aggressive offers..
OCEAN FREIGHT MARKET AND SPREADS
OCEAN FREIGHT COMMENTS
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: As we approach the Chinese New Year, traffic is getting lighter. With fewer cargos showing up, rates are softer. How strong will Chinese demand be coming out of the New Year holiday? I don’t know. Vessel owners are certainly hoping for robust activity but we all remember what happened after the Chinese Olympics when expectations were similar. It’s always difficult to anticipate the degree of Chinese stockpiling and the government’s policies. The one thing we do know is that Chinese demand will lead world freight markets, up and down, in 2010.
From 1 January, 2010 to now (5 weeks), we’ve experienced an 8,622 point or 20% drop in the Atlantic/Gulf Panamax index. Over the same period the Panamax index in the Pacific dropped 2,335 points or 9%. Freight markets staged a small rally on Thursday and Friday of this week but were unable to close higher for the week. The outlook for next week is not bullish. I’m calling the current U.S.-Gulf to Japan Panamax market for March-April at about $63.00/mt but have seen fixtures slightly lower.
As the nearby freight values have declined, the market inverse has naturally narrowed. Freight markets are fairly flat going out 60-90 days and are inverted only about $2.00/mt out to June.
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: $12.25-$12.50
Three weeks ago: $12.00-$12.25
One week ago: $11.00-$11.50
This week $9.25- $9.75 (Down $1.75/mt from last week).
In dollar terms, the current spot and 30-day U.S. Gulf to Japan Panamax market is currently near $63.00/mt. The 30-day Panamax rates from the PNW to Japan are approximately $37.00/mt. The PNW/Gulf freight spread to Asia is approximately $26.00/tonne (.66/bushel for corn and .70/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
