Outlook: Much has been said about poor quality U.S. corn and large South American crops and yet U.S. export sales were nearly one million tons this past week. Just 600,000 tons per week is needed to meet the forecast for the year, which now looks to be met or exceeded.
The market is digesting the macroeconomic developments and looking for any change in fundamentals but even the bears are not proving much. Despite a reversal since the January WASDE that has reduced the number of long positions and increased the number of shorts (a shift from being 35,000 contracts long to being short by 4,600 contracts), there has been a concurrent increase in open interest (+15.1 percent for corn for the month). While there are various reasons for this, the price of corn declined even as long positions were retained. In any event, it does not take much to send speculative funds running for cover. That will be the case for a few more weeks.
Finally, it can be said that the market also looks farther down the road and USDA’s Outlook Conference this week suggested a 2.5 million acre increase in 2010 planted corn, but a slight decline in global corn ending stocks. The private consensus is that corn acres will actually be higher due to the favorable net returns over soybeans and the larger decline in wheat area
CBOT MARCH CORN FUTURES
Current Market Values:
U.S. WEATHER/CROP PROGRESS
U.S. Drought Monitor Weather Forecast: Through February 22, temperatures are going to remain cool over much of the United States. Temperatures will range from 12-15 degrees Fahrenheit below normal over the central Plains to 3-6 degrees below normal over the southern tier of the country. Temperatures are expected to be 3-6 degrees above normal over the Pacific Northwest and upper portions of New England. Precipitation looks to be widespread during this time, with precipitation maxima over Arkansas, Colorado and the California coast.
The forecast from February 23-27 shows that much of the eastern two-thirds of the United States have the best chance for below-normal temperatures, with the coolest readings expected over the Mid Atlantic states. Dry conditions over the Great Lakes and New England regions should be expected while the best chances for above-normal precipitation will be over much of the southern United States, with the best chances over east Texas, Louisiana and Florida. 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 974,600 MT for delivery in 2009/10 were up 31 percent from the previous week, but down 7 percent from the prior 4-week average. Increases were reported for Japan (335,000 MT, including 125,000 MT switched from unknown destinations and decreases of 3,700 MT), Mexico (186,000 MT), Egypt (66,000 MT), Syria (60,000 MT), South Korea (58,400 MT), Guatemala (51,800 MT), and the Dominican Republic (46,300 MT, including 15,000 MT switched from unknown destinations). Decreases were report for unknown destinations (124,700 MT) and Colombia (17,000 MT). There were no sales reported for delivery in 2010/11. Exports of 652,200 MT were up 8 percent from the previous week, but down 16 percent from the prior 4-week average. The primary destinations were Japan (226,500 MT), Mexico (148,300 MT), South Korea (115,000 MT), Ecuador (33,400 MT), Canada (28,600 MT), Saudi Arabia (23,500 MT), and Taiwan (20,100 MT).
Barley: There were no sales reported during the week. Exports of 1,200 MT were reported for Canada.
Sorghum: Net sales of 106,300 MT were primarily for Mexico (101,900 MT) and Japan (89,800 MT, including 88,000 MT switched from unknown destinations). Decreases were reported for unknown destinations (84,900 MT) and Canada (500 MT). Exports of 132,400 MT were to Japan (89,800 MT) and Mexico (42,500 MT).
FOB
DISTILLER'S DRIED GRAINS WITH SOLUBLES (DDGS)
The market this week was stable but quiet. Prices reflected that situation with only slightly higher or lower price changes from last week depending on the destination quoted. The big news was the announcement of the CME DDGS futures contract. Full specification details and trading rules are provided on their website at the following link:
http://cmegroup.mediaroom.com/index.php?s=43&item=2986
Domestic:
- The market this week has been responding to suggestions of weakening Canola meal cash prices and that this will eventually impact DDGS prices negatively.
- Supplies of DDGS continue to grow, with new plants coming online and existing plants ramping up production levels. Ethanol margins are still positive but had some decline in the last week
Exports:
- CIF Nola barge trade was steady this week, not showing much change in price from last week. The Chinese New Year seems to impact trade across Asia and therefore in most export market channels.
- The container export trade is similarly quiet this week (Chinese New Year). Trade was characterized as managing delivery and logistics for existing contracted sales. The lack of containers in the Chicago area is forcing more trucks to be loaded for the domestic market or barge markets. Hopefully container availability will improve after the Chinese New Year holiday.
- Canadian demand was quiet this week.
- Mexico export demand was solid, with a reported 20,000 mt of demand in the western border crossing region
COUNTRY NEWS
Argentina: Corn was quoted at $6-7/MT below U.S. FOB values, plus there is a perceived quality advantage. The government is talking about a 10 MMT export license program. However, near term demand is larger, creating an old/new crop inverse.
Brazil: Some corn may be competitive (offered at $172/MT March) given that it is sooner available than some Argentine production, but there has still not been any movement.
India: Like many other crops, coarse cereal production is down (-14.38 percent) in India and consumers must brace for food price inflation. Meanwhile, government approval of GM brinjal (eggplant) has been delayed due to political concerns.
Japan: Talk in Japan is that its purchase of S. American corn may be the biggest in many years as a result of quality concerns about the U.S. crop
Russia: Feed wheat and barley prices are flat but corn was pressured higher (175.90/MT inland) in the Black Sea region.
Ukraine: Corn export prices remain firm at $180-185/MY FOB Black Sea but slow export movements are already pressuring barley prices lower ($139-141/MT) and corn may follow.
United States: USDA expects 89 million acres of corn to be planted this year, a 2.5 million acre increase but some believe the amount will be even larger. Separately, U.S. DDG exports hit a record $1 billion in 2009 and the CME announced this week the launch of a new DDG futures contract. Open interest in an ethanol futures contract has been relatively light and so it is unclear whether this new related contract will attract any larger liquidity.
OCEAN FREIGHT MARKET AND SPREADS
OCEAN FREIGHT COMMENTS
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: It’s been a down and up week. Freight markets continued their downward trend on Monday and then rallied back, little by little, each following day. We are in the Chinese New Year holiday season and trade is light but logistical snags persist, especially at west coast Australia mines. The market is carefully anticipating the return of Chinese Iron Ore demand after the holiday season. Only time will tell the true level of Chinese interest. It’s amazing to recognize that one country holds the key to the entire world Dry-Bulk freight market.
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: $11.00-$11.50
Three weeks ago: $9.00-$9.75
One week ago: $8.25-$8.75
This week $9.15- $9.50(Up $.75 - $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 $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 .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
