Outlook: For drama, pictures circulated of the spring 2010 harvesting of corn in the U.S. upper plains through early morning frost and snow, and then through slush as the days warmed. However, the larger issue is wetness in the central Corn Belt and now dry and warm weather. The 31 March stocks report poses a curious burden: third quarter corn use was the second largest ever due to ethanol, and yet the stocks report could show the third largest amount in 17 years. Still, prices will remain choppy until the end of March planting intentions and stocks reports.
CBOT MARCH CORN FUTURES
Current Market Values:
U.S. WEATHER/CROP PROGRESS
U.S. Drought Monitor Weather Forecast: Through March 29, two storms will affect similar parts of the United States. The first storm will move across the middle Mississippi and lower Ohio Valleys on March 25 and reach the Mid-Atlantic coast on March 26. Rain will accompany the storm and its trailing cold front. Meanwhile, the second system will arrive in the Pacific Northwest on March 25, and later re-develop over the southern Plains by March 27. The second storm will cross the southern Mid-Atlantic States on March 28-29. Two storms combined will produce as much as 2 to 4 inches of rain in Florida and widespread 1- to 3-inch totals along and south of a line from the central Plains into the Mid-Atlantic States.
The outlook for March 30 – April 3 calls for below-normal temperatures west of the Rockies and in the southern Atlantic region, while warmer-than-normal weather will prevail across the Plains, Midwest, Mid-South, and Great Lakes and Mid-Atlantic States. Meanwhile, drier-than-normal conditions from the Mississippi River to the Appalachians will contrast with near- to above-normal precipitation elsewhere. Wet conditions will be most likely in the Pacific Northwest. 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 606,800 MT for delivery in 2009/10 were down 19 percent from the previous week, but up 8 percent from the prior 4-week average. Increases were reported for Mexico (142,100 MT), Japan (139,900 MT), South Korea (112,400 MT), Taiwan (111,200 MT, including 56,000 MT switched from unknown destinations), Guatemala (43,600 MT), Canada (35,800 MT), Honduras (30,000 MT, including 20,000 MT switched from Costa Rica), and Morocco (12,000 MT, including 11,000 MT switched from unknown destinations). Decreases were reported for unknown destinations (45,600 MT) and Costa Rica (20,000 MT). There were no sales reported for delivery in 2010/11. Exports for own account were reported for Mexico (4,700 MT). Exports of 1,160,800 MT were up 22 percent from the previous week and 10 percent from the prior 4-week average. The primary destinations were Japan (280,900 MT), Mexico (265,400 MT), South Korea (132,100 MT), Taiwan (127,900 MT), Egypt (107,600 MT), Peru (49,200 MT), and Venezuela (33,700 MT).
Barley: There were no sales reported during the week. Exports of 3,100 MT were to Canada (2,900 MT) and Mexico (200 MT).
Sorghum: Net sales of 17,000 MT resulted as increases for Mexico (17,800 MT) and Japan (5,600 MT, switched from unknown destinations), were partially offset by decreases for unknown destinations (6,000 MT) and Canada (400 MT). Exports of 106,800 MT were to Mexico (98,200 MT) and Japan (8,600 MT).
FOB
DISTILLERS DRIED GRAINS WITH SOLUBLES (DDGS)
DDGS prices are steady this week with stable domestic demand and some growth in exports. It appears that the price of DDGS relative to corn which ranges from a discount of -$10-20.00/ per short ton depending on the location is driving end users to increase it in their rations across most major feed sectors. Another factor is the decrease in supply of DDGS lately caused by the several ethanol plants which are reducing production or closing for maintenance. We received information that ethanol production profit margins are low or negative depending on the plant which would further encourage them to take this time to close for maintenance
Exports:
There was some increase in demand for DDGS in barges delivered to New Orleans port this week. The bidding was in the nearby delivery months of March and April 2010.
Container exports are shifting to the west coast due to differences in container freight rates relative to the bulk hopper car rates delivered to California. The general rate increase for containers starting April 1, 2010 is equal to about $12.00 per metric ton.
Demand from Canada and Mexico remains solid, but not overwhelming.
Domestic Markets:
Demand to the California Dairy market has improved along with the price of canola meal which has also increased about $25.00 per ton in the last few weeks relative to soybean meal prices.
COUNTRY NEWS
Argentina: Steve dores went on strike at the peak of harvest, demanding a huge pay increase. Some private scouts are now predicting a super impressive 22 MMT of corn prediction and profits are large. Corn is bought at $114/MT or +19ck with sales at high 30’s-40ck, creating a profit for traders of 20 cents per bushel or $8/MT. A panamax of Argentine corn is cheapest and Iran cannot purchase anywhere else.
Brazil: Corn is coming closer to competiveness with Argentina but still faces stiff port competition from soybeans.
Russia: Feed prices continued declining though government policymakers are committed to increasing both feed use and exports.
India: Those affected by large world wheat supplies should note that the government has decided against putting any more wheat on the world market and instead will provide it to the internal food market for those above the poverty line.
Philippines: Genetically modified (GM) corn production in the Philippines has become a multi-billion peso venture according to a local report. The net national impact of GM maize on farm income was estimated at $49 million (about P2.25 billion) in 2008.
Ukraine: Like last week, feed wheat prices dropped, barley was stable and corn gained $1/MT to $180/MT FOB Black Sea ports
Thailand: Severe drought could start to have repercussions on agricultural production as water resources are reported to be at their lowest level in 50 years.
OCEAN FREIGHT MARKET AND SPREADS
OCEAN FREIGHT COMMENTS
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: Due to my travel schedule this report is again coming to you one day early. I’m still in China and one day ahead of most people.
This was a turnaround week for world freight markets as things fell back and the rally, at least temporarily, ended. Last week’s tropical cyclone Hamish damaged eastern Australian coal ports of McArthur, Hay Point and Dalrymple and diminished exports (and therefore freight demand) from the region. In general I think that last month’s freight rally simply ran its course and ran out of steam. Nothing can go up—or down—forever. The market slipped by close to 8 percent this week. The freight market is fairly flat going out 60 days.
What’s going on in China? As always it is very much a guessing game because good hard data is impossible to come by. The best advice I know is to simply follow the market action there and take your clue from that. From my visits it smells like something is up, something is different. The drought in northeastern and southwestern China has definitely caused some damage and crop reduction but the extent of the crop loss is unclear. Domestic corn prices are rising and buyers say that they have to travel farther distances to originate corn. Chinese farmers in the northwest of China state that have sold most of their corn and have less than normal remaining to be marketed. They also say that the wheat crop is behind in development. As the CME Board and U.S. corn prices drop and Chinese domestic prices rise, we are approaching import parity values in the Southern regions of China. China has already issued 7.2 million mt of corn import licenses (60 percent for government purposes and 40 percent to the private sector.)
This action does not guarantee use of the licenses and imports are not necessarily certain. But it does mean that buyers in China will have the option of considering corn imports if the price becomes attractive. Buyers I spoke with say that they are watching the price relationships and will consider importing later in the crop year (the summer) if the drought in Southwestern China continues and or worsens. Today Chinese domestic corn delivered to the port of Guangzhou is priced at 2030 RMB/mt, equal to $297.21/mt.
If we take Fob PNW corn values of about $193.10 for #2YC and ocean freight of $41.00, we will get a CNF Southern China value of close to $234.10/mt , plus the 13 percent VAT of $30.43 = $264.53 USD/mt1807 RMB/mt.CNF. From the U.S. Gulf the equation would have a similar result; #2YC at $164.00 Fob plus $69.00 ocean freight equals $233.00 plus the 13 percent VAT of $30.30 = $263.30 USD/mt CNF or 1799 RMB.
If my data and calculations are correct, the current drop in U.S. corn values would put U.S. corn at a 11 percent discount to domestic corn at southern China ports. I’ll let my friends in China double check my math and see if they agree. I’m told that China is more likely to import feed wheat than seek corn. The Chinese government has already released three year old Canadian wheat from reserves to feed mills. In China it’s always interesting.
From my visits to Xiamen, Shanghai and Shandong China, I found a great deal of interest in U.S. DDGS. I heard trader projections that China will import between 1.5 and 3.0 million mt of DDGS in 2010. If correct, it would be a big jump from 2009 imports of 654,000 mt. DDGS demand does seem strong here and numerous domestic traders are getting into the business of importing DDGS in containers. The primary challenge here is going to be one of container availability and logistics.
Due to tight container supplies, China may be able to import close to one million mt, or slightly more, by container. DDGS expansion beyond that will have to depend on Dry-Bulk shipments
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: $10.50-$11.00
Three weeks ago: $10.75-$11.50
One week ago: $11.00- $11.50
This week $10.50- $11.00(Down slightly from last week).
In dollar terms, the current spot and 30-day U.S. Gulf to Japan Panamax market is currently near $69.00/mt. The 30-day Panamax rates from the PNW to Japan are approximately $41.00/mt. The PNW/Gulf freight spread to Asia is approximately $28.00/tonne (.71/bushel for corn and .76/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
