Outlook: USDA’s WASDE report increased U.S. corn use for ethanol (+100 mil. bu.) and export (+45 mil. bu.), dropping end stocks (-45 mil. bu.). World end stocks were also cut (-2.15 MMT). South American producers increased their hedges in Chicago. The March corn contract has tumbled 78 cents from its high of $4.26 on 4 January to $3.4775 on 5 February. Exports remain sub-par for making the 2 billion bushel forecast. For the next couple of weeks, buying at $3.50/bushel and selling at $3.65 may be the tango.
USDA’s forecast of 88 million acres planted to corn in the U.S. in 2010 is nothing more than a educated guess, making it interesting but not particularly meaningful. There is a tendency to become bearish, but that is hazardous when there is always a chance for surprises.
CBOT MARCH CORN FUTURES
Current Market Values:
U.S. WEATHER/CROP PROGRESS
U.S. Drought Monitor Weather Forecast: Through February 15, temperatures for most of the United States will be below normal. Temperatures will range from 12 degrees Fahrenheit below normal in Texas to 3 degrees Fahrenheit below normal across the northern plains and Great Lakes regions. The coastal regions of Oregon and Washington as well as portions of New England and the Ohio River valley will be impacted by heavy precipitation.
From February 16-20, the forecast shows that the eastern half of the United States should experience below-normal temperatures, with the greatest departures in and around the southeast. The best chances for above-normal precipitation are over the plains states and into portions of the Gulf coast. The best chances for drier-than-normal conditions are centered on the Great Basin and into the Great Lakes 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 743,200 MT for delivery in 2009/10 were down 20 percent from the previous week and 21 percent from the prior 4-week average. Increases were reported for South Korea (171,400 MT), Japan (151,100 MT, including 61,000 MT switched from unknown destinations and decreases of 20,500 MT), Mexico (130,900 MT), Guatemala (72,700 MT), Colombia (64,600 MT, including 6,400 MT switched from unknown destinations), Venezuela (55,000 MT), and Costa Rica (25,300 MT). Net sales of 6,900 MT for delivery in 2010/11 were for Mexico. Exports of 603,800 MT were down 46 percent from the previous week and 23 percent from the prior 4-week average. The primary destinations were Mexico (140,600 MT), Japan (133,100 MT), South Korea (115,300 MT), the Dominican Republic (69,800 MT), Egypt (28,000 MT), Costa Rica (25,300 MT), and Guatemala (24,700 MT).
Barley: There were no sales reported during the week. Exports of 1,500 MT were reported for Canada.
Sorghum: Net sales of 25,500 MT were for Mexico (22,000 MT) and unknown destinations (5,100 MT). Decreases were reported for Japan (1,600 MT). Exports of 32,300 MT were to Mexico (26,900 MT) and Japan (5,400 MT).
FOB
DISTILLER'S DRIED GRAINS WITH SOLUBLES (DDGS)
DDGS prices are slightly lower this week again, though prices are increasing in the domestic market and export values are dropping slightly to a more balanced differential. We are gradually moving into the summer months, in a climate characterized by a net decrease in feed demand compared to two years ago and a net increase in the supply of feed grains (feed wheat) globally. The availability of proteins is also more abundant this year, limiting the increase in DDGS prices for the protein value. Exports are seasonally slow for February due to holidays in Asia (China specifically). Exports are up overall by about 22% for 2009 over 2008. We will see DDGS production and exports grow over 1 million metric tons a year for the next two years.
Domestic: The FOB prices for plants in the Midwest for trucks of DDGS are at about $90-95.00 per short ton (2,000 lbs). Rail prices delivered to the West Coast are down a little bit but around $157/st, in line with the rail freight costs. California dairy demand has been steady this week, and soymeal/canola meal prices have been dropping to match that of DDGS protein values easily.
Exports:
- The prices in containers and bulk are weaker. There are some reports of (CFR/C&F Business) for DDGS being sold at discounts of $5.00 mt by some suppliers, however it is not clear if this is because of quality differences or supply pressures.
- Mexican weekly business has been estimated at an average of about 20,000 mt and is absorbing additional supplies with no problem.
- Business to Canada has picked up this week as well, with about 6000 mt to Lethbridge reported.
- There is some news of DDGS plants beginning to pelletize DDGS, so that should improve the freight efficiency and ability to compete with more dense proteins and energy grains for export.
- Container availability remains limited but should improve after the holidays.
COUNTRY NEWS
Argentina: USDA raised its estimate of the Argentine corn crop by 2.2 MMT to 17.2 MMT but kept its export estimate at 9.5 MMT, the same as last year. The BA Grain Exchange says the corn crop is 19.2 MMT crop and some private estimates say it could be 20 MMT, which is overly optimistic. Moreover, drier weather must commence soon in order to protect the quality of the crop as harvest begins. Traders may have to pay demurrage on aggressive sales they made for late Feb/early March shipment if there is any harvest delay.
Brazil: USDA kept its estimate of the Brazilian corn crop at 51 MMT.
India: Buffalo herds are being reduced in response to high priced feeds and fodders. Meanwhile, there is both domestic and export demand for proteins.
Russia: Grain prices are falling, even for feed corn, which is in short supply and had previously seen stronger prices. Barley has dropped most significantly. The government continues to predict the country’s increased dominance in global grain markets.
Ukraine: All feed grain prices continue falling as demand is limited due to the lack of VAT refunds and the rising hryvnya. Corn export prices were around $180-185 MT/FOB Black Sea ports and could fall further if buying does not resume. The presidential election is unlikely to have much impact on the grains market.
United States: USDA issued its long-range (2010-2020) outlook showing continued growth in coarse grain exports, particularly to the Middle East, plus Asia and Africa. The FSU grows as a barley exporters and Mexico increases its sorghum imports. Ethanol shows the largest demand spike
OCEAN FREIGHT MARKET AND SPREADS
OCEAN FREIGHT COMMENTS
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: Sunday, 14 February, marks the start of the Chinese New Year. The celebrating will continue for 15 days and should provide for a rather quiet period in the freight markets. As the old commodity market saying goes, a bull must be fed every day. As such the next two weeks are not likely to provide much food or fodder for world freight markets. Vessel owners, of course, will hope that strong Chinese demand returns after the festivities. The year of the Tiger is starting out bearish however.
From 1 January 2010 to now (6 weeks), the Baltic Panamax index for the Atlantic/Gulf has dropped by 10,158 points or 23%, while the Panamax index in the Pacific has declined by 2,456 points or 9.5%. The current picture is much brighter for vessel owners than it was at the start of 2009. The Baltic Panamax index in the Atlantic/Gulf started out in January 2009 at just 7,840 points or $22.00/mt to Asia. The Pacific Panamax index began 2009 at 2,398 points or $13.50/mt to Asia. At $61.00 and $35.00/mt today, we are a long distance away from those levels.
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 $1.50/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: $12.00-$12.25
Three weeks ago: $11.00-$11.50
One week ago: $9.25-$9.75
This week $8.25- $8.75(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 $61.00/mt. The 30 day Panamax rates from the PNW to Japan are approximately $35.00/mt. The PNW/Gulf freight spread to Asia is approximately $26.00/tonne (.66/bushel for corn and .71/bushel for wheat and soybeans). The spreads however are narrowing and the PNW advantage is very small now.
* 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
