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: From February 25 – March 1, an active weather pattern will prevail across the West, South, and East. In particular, precipitation could total as much as 2 to 4 inches in the Pacific Coast States, while some additional snow may fall across parts of the southern Plains. Snowfall could reach 2 to 3 feet across the interior. Cold weather will persist into next week across much of the nation, with light freezes (temperatures near or slightly below 32 degrees F) possible as far south as interior southern Florida on February 26.
Through March 6, the forecast calls for a continuation of near- to below-normal temperatures across the majority of the U.S. Warmer-than-normal weather will be confined to the nation’s northern tier. Meanwhile, below-normal precipitation across the Intermountain West, Rockies, Plains, and Midwest will contrast with wetter-than-normal conditions in parts of California and from the Gulf Coast region into the southern Atlantic States. 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 401,300 MT for delivery in 2009/10 were down 59 percent from the previous week and 55 percent from the prior 4-week average. Increases were reported for South Korea (230,300 MT, including 172,600 MT switched from unknown destinations), Japan (213,400 MT, including 83,300 MT switched from unknown destinations), Egypt (63,300 MT, including 60,000 MT switched from unknown destinations), Peru (60,000 MT), Syria (48,000 MT), Mexico (28,100 MT), and the Dominican Republic (27,500 MT). Decreases were reported for unknown destinations (299,900 MT). Net sales of 50,000 MT for delivery in 2010/11 were for unknown destinations. Exports of 1,240,600 MT--a marketing-year high--were up 90 percent from the previous week and 71 percent from the prior 4-week average. The primary destinations were Japan (420,400 MT), South Korea (288,000 MT), Mexico (248,900 MT), Taiwan (129,100 MT), Egypt (63,300 MT), Costa Rica (25,200 MT), and Canada (20,600 MT). Note: Accumulated exports were adjusted down for Cuba (24,500MT)).
Barley: Net sales of 15,500 MT were for Canada. Exports of 200 MT were to Canada.
Sorghum: Net sales of 106,400 MT were primarily for Mexico (91,500 MT), unknown destinations (10,000 MT), and Morocco (7,000 MT). Decreases were reported for Japan (1,200 MT). Net sales of 30,000 MT for delivery in 2010/11 were for Mexico. Exports of 170,800 MT--a marketing-year high--were up 29 percent from the previous week and noticeably from the prior 4-week average. The destinations were to Mexico (91,200 MT) and Japan (79,600 MT).
FOB
DISTILLER'S DRIED GRAINS WITH SOLUBLES (DDGS)Domestic: Domestic demand was steady this week in the California dairy markets, and feeding margins for beef, swine and poultry sectors are improving over last month
The DDGS market remains a bit on the bearish side this week. March-May production of DDGS is higher, but future (July-December) ethanol margins are down. That does not bode well for future production increases
Exports: CIF Nola (bulk export) trade from the Gulf has been slow this week as well, with some bids coming from the major exporters. Export demand is slow this week again and container availability is limited, making new sales difficult to conclude. There is much frustration among exporters over the container line general rate increases.
Estimates of quantities of DDGS to foreign countries from 2004-2009:
|
Year
|
Total (MT)
|
|
2004
|
787,706
|
|
2005
|
1,069,211
|
|
2006
|
1,253,653
|
|
2007
|
2,358,248
|
|
2008
|
4,532,352
|
|
2009
|
5,640,901
|
COUNTRY NEWS
Argentina: Incurring the wettest February in more than 100 years, the corn harvest has been delayed, but yields are described as likely to be “outstanding.” Still, spot shipments have become spotty due to the delay in harvest and previous bookings.
India: The government has reduced the subsidy on urea by 10 percent but there are still likely to be imbalances in crop nutrients that will plague crop productivity, and the shortage of dairy production is another potential global demand factor.
Japan: Traditionally a major importer of U.S. corn, a Japanese grain house told BusinessWeek magazine that lower protein and mycotoxin concerns prompted it to switch to South American origins and imports of corn from Brazil could be ten times greater this year
Russia: The feed wheat market has been stable and one market analyst forecasts that Russia will produce 15.5 MMT of barley this year.
Philippines: Salvador S. Salacup, Agriculture Undersecretary for livestock and poultry, estimates that around 700,000 metric tons of feed wheat will be imported into the Philippines to offset a drought-induced 175,000 MT shortfall in corn production. He said 300,000 metric tons of feed wheat have already entered the country. Normally 200,000-300,000 tons of corn is imported but corn is landed at P17/kg versus feed wheat at about P12/kg.
Ukraine: Feed wheat, barley and corn prices all strengthened about $1/MT, with barley at $139-141/MT FOB Black Sea and corn at $180-185/MT. Bad weather slowed deliveries but prices are expected to slowly strengthen, even when roads become drier
OCEAN FREIGHT MARKET AND SPREADS
OCEAN FREIGHT COMMENTS
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: World freight markets rallied this week as we came out of the Chinese New Year holiday. Vessel owners are “optimistic” and believe that 2010 will be better than 2009. DryShips, a major ocean freight provider, just reported their 4th quarter earnings statement and announced that it had a good and profitable quarter.
George Economou, the DryShips CEO stated “We are pleased to report another quarter of profitable operating results for DryShips as both our drilling and dry bulk units continued to perform at high utilization rates... China was the driving force of the dry bulk market last year with iron ore and coal imports increasing year on year at a record pace. For 2010, we expect commodity demand to increase at a strong pace as the year on year gains in Chinese imports will be supplemented by a return to normality of the rest of the world. On the vessel supply side the projected deliveries are expected to be reduced by cancellations and delays due to the severe lack of financing."
I believe the above statement holds three main thoughts that are fairly universal among vessel owners. First that the world economic situation will return to “normalcy” in 2010 and second that China’s demand for raw materials will continue at a record pace. In my opinion these are both big assumptions. The third assumption is that new vessel deliveries will be slow and delayed in 2010 due to a lack of buyer financing.
Personally I’m in the camp that believes the world financial recovery will be a slow and gradual climb in 2010 and that we will still hit some serious speed bumps, here and abroad. As for China’s demand, that’s always a bit of a wild guess and there are internal reasons as to why China’s economy could slow down just as easily as it could continue at the same pace. China is also excellent at stockpiling materials and commodities and it is very difficult to predict when they will increase or decrease that effort.
I do agree that these three items are the keys to the 2010 freight picture. I just don’t believe that it will be smooth sailing. It’s still going to be a volatile affair and neither vessel owners nor charterers should get greedy or attempt to be too clever. Freight and commodity markets are very good at making everyone look foolish.
As you can see in the below chart, the Baltic index was up 4-9 percent this week and physical rates followed, albeit at a slightly slower pace. The market inverse has dissolved and the freight markets are fairly flat going out 60-90 days.
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: $9.00-$9.75
Three weeks ago: $8.25-$8.75
One week ago: $9.15-$9.50
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 $65.00/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 $27.00/tonne (.69/bushel for corn and .73/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
