Outlook: There are always surprises when all the signs point in the same direction. Corn entered the week on all bearish signals for stocks and expected plantings. It peaked on a China rumor a dime higher at mid-week, only to end the week a fraction lower from where it started on Monday. We could focus on the fact that corn just logged one of its biggest export totals in weeks, even if sales were to the usual three—Mexico, Korea and Japan. But there is too little left of old crop fundamentals to say much. Looking forward, the April WASDE did not add unexpected supplies, but it is important to note that the March planting intentions report has underestimated the amount of corn drilled in each of the past four years.
All things may seem left to weather and planting but there are other important factors to watch: petroleum prices and the value of the dollar to name but two.
CBOT MAY CORN FUTURES
Current Market Values:
U.S. WEATHER/CROP PROGRESS
Through April 12, moderate to heavy precipitation (0.50 to 1.50 inches) is forecast for the drought areas of the northern Rockies, with lighter (less than 0.50 inch) amounts anticipated over the central Intermountain region and upper Great Lakes area. Generally moderate amounts of rain (0.50 – 0.75 inch) can be expected across the dry areas of the deep South, with 1.50 inches for central Kentucky. Occasional storms moving across the contiguous United States will prevent many areas from experiencing further degradation.
From April 13-17, significant precipitation is most likely across the western and central contiguous U.S., with lesser amounts over the eastern third of the Nation. 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 1,357,800 MT for delivery in 2009/10 were up 64 percent from the previous week and up noticeably from the prior 4-week average. Increases were reported for South Korea (616,800 MT, including 111,700 MT switched from unknown destinations and decreases of 9,700 MT), Japan (280,600 MT, including 93,200 MT switched from unknown destinations and decreases of 9,400 MT), Mexico (167,400 MT), Egypt (120,000 MT), Guatemala (55,900 MT, including 20,000 MT switched from unknown destinations and decreases of 1,100 MT), and Peru (49,000 MT). Decreases were reported for unknown destinations (44,100 MT). Net sales reductions for delivery in 2010/11 of 59,800 MT resulted as increases for Mexico (59,400 MT), Guatemala (28,000 MT), and Canada (800 MT), were more than offset by decreases for unknown destinations (148,000 MT). Optional original sales of 48,000 MT were reported for South Korea. Exports for own account were reported for Mexico (4,200 MT). Exports of 875,400 MT were down 28 percent from the previous week and 19 percent from the prior 4-week average. The primary destinations were Japan (346,800 MT), South Korea (230,800 MT), Mexico (96,400 MT), Colombia (45,400 MT), Guatemala (35,900 MT), and Cuba (24,100 MT).
Barley: There were no sales reported during the week. Exports of 1,100 MT were to Canada.
Sorghum: Net sales of 48,200 MT were reported for Mexico (36,200 MT) and Japan (21,600 MT, including 9,600 MT switched from unknown destinations). Decreases were reported for unknown destinations (9,600 MT). Exports of 83,000 MT were to Mexico (60,400 MT) and Japan (22,600 MT).
FOB
DISTILLERS DRIED GRAINS WITH SOLUBLES (DDGS)
DDGS bulk and container prices are higher this week in response to strong export demand from Asia. China has apparently stepped in and bought some substantial volumes. Many other Asian destinations are following the trend and buying DDGS for the next 30 to 60 days. The value of DDGS relative to soybean meal and other feed ingredients varies from country to country depending on the import duty of the competing ingredients such as soybean meal, feed wheat or fats. DDGS has a considerable landed in-country price advantage over some of these substitutes, including local Chinese corn in Southern China. Currently with the higher container freight rates to Asia, bulk shipment delivered to the port is at about $10.00-$20.00/mt cheaper depending on your discharge and loading costs for DDGS.
Regarding ethanol margins and production, the margins turned slightly positive this week. There is talk that new legislation approving an increase in the percent of ethanol blended into gasoline (E-15?), could be forthcoming this summer, which would dramatically improve the outlook for ethanol production and margins. I wish they would change the laws. In California it is $3.30/ gallon and ethanol in the Midwest is below $1.60/gallon—it can’t cost that much to transport it and taxes here are high ($.60/gallon approximately)—it still does not add up. It is time to write your Congressman about this!
Exports:
- The general consensus is that the recent rise in DDGS prices is in response to a surge in buying (April-May) from China and other Asian destinations. Whereas we do not see this as a long term price trend we do estimate that the demand from China (if unchecked by government restrictions) will support the price of DDGS relative to corn in the USA for many months to come.
Domestic Markets:
- Prices for DDGS FOB Midwest ethanol plants (IOWA-Illinois) are from $100.00- $105.00 per short ton, or ($110.00-$115.00 mt loaded in the truck at the plant.
- Dairy and cattle feed lot demand for DDGS is steady but declining in volume into the summer, as is always the case this time of year. Prices for live cattle and milk are on the rise, which bodes well for future demand into the fall and winter of 2010.
- Poultry Demand was exceptionally strong this week with both Tyson and Pilgrims Pride buying DDGS for their feed rations in substantial volume, one source estimated up to 70,000 mt total.
COUNTRY NEWS
Argentina: The dock worker strike ended sooner than feared and corn basis remains very strong. Trades were heard at 53-55 cK FOB upriver; 95 cK FOB Bahia Blanca on the spot market. Big yields from a fast harvest could net 21 MMT. Argentine President Cristina Fernández de Kirchner told a Washington business crowd that her ambition was to raise the amount of value added to the country’s commodity exports.
India: A decision on introducing a biotech eggplant could take a year and involves the larger decision of whether the technology will be the basis for feeding the population. Meanwhile, the expansion of quick serve restaurants is being accommodated, which will impact the commodity demand/supply sector.
China: Some large southern corn users made requests for import licenses as domestic corn is priced above import levels, but the government is unlikely to approve them—particularly as corn planting is about to begin.
European Union: EU farmers offered over 200 KMT of barley into intervention this week, and there is now 4.6 MMT of 61.8 MMT old crop barley in intervention. The Commission typically prefers the price to be above €101/MT before it makes a sale. Barley is ineligible for intervention beginning with the 2010/11 crop and so planting area is expected to fall 9 percent, resulting in a 57 MMT barley crop.
Russia: The market is generally bearish and the government announced lower purchase prices for intervention this year.
Ukraine: The near term remains bearish as the hryvnya has strengthened, VAT reimbursements are unresolved, and farmers are anxious to sell to raise cash. Still, corn prices remained stable and barley actually rose $2/MT.
United States: In a first, the Securities and Exchange Commission has received an application for the establishment of an exchange traded fund (ETF) that would invest in a single CME grain contract—corn.
OCEAN FREIGHT MARKET AND SPREADS
OCEAN FREIGHT COMMENTS
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: Last week the market took and this week it gave back. If last week was a “turnaround” week for world freight markets, then so was this one. Looking forward, there seem to be sufficient open vessels in the market, but as dates get closer the market is soaking up what is available and the spot market looks tight.
A surge in Japanese coal demand has taken up a lot of the slack in the market and the Atlantic minerals market remains quite active. Of course we also have a growing movement of grains out of South America and the vessel lines are increasing. Brazilian freight to Asia remains a slight premium to the U.S. Gulf, with Up River rates at about a $9.00 premium. The market got a little excited Wednesday with the rumor that China might import 2 million tonnes of corn. But today the news is simply that, on 13 April, the Chinese government will release 1.08 million tonnes of domestic corn reserves in an effort to stem the rise in domestic prices
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: $10.75-$11.50
Three weeks ago: $11.00-$11.50
One week ago: $10.50- $11.00
This week $10.00- $10.50(Down slightly from last week).
In dollar terms, the current spot and 30-day U.S. Gulf to Japan Panamax market is currently near $70.00/mt. The 30-day Panamax rates from the PNW to Japan are approximately $42.00/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.
INTEREST RATES
