Outlook: While the corn market benefits from the glitz of the anomalous Chinese demand, commodity markets overall are being pressured lower by the uncertainties in the overall macroeconomic situation. Greek-led angst in Europe has prompted investors to seek safer places for their cash. Agricultural commodities are not a safe haven from risk but are likely less adversely impacted than equities due to the fact that non-commercial money plays a smaller role in these contracts. Even though ending stock numbers may not change appreciably, the psychology of China’s continued corn purchases will put a definitive floor under the market.
CBOT JUNE CORN FUTURES
Current Market Values:
U.S. WEATHER/CROP PROGRESS
U.S. Drought Monitor Weather Forecast: A slow-moving storm system will generate locally heavy showers across the central U.S., but rain will largely bypass drought areas of the Upper Midwest. Showers from this system will reach the East Coast States over the weekend, although rain will be generally light across the Southeast and lower Delta. Meanwhile, a pronounced southward dip in the jet stream will bring cold, unsettled weather to much of the West, with potentially heavy rain and mountain snow from the northern High Plains westward into the northern Rockies and Northwest.
The CPC 6-10 day forecast (May 25–29) calls for above-normal temperatures over most of the central and eastern U.S., with below-normal temperatures expected west of the Rockies. Wetter-than-normal weather is anticipated across northern portions of the Plains, Rockies, and Pacific Coast States, while drier-than-normal conditions prevail across the Northeast and southern Plains. 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 1,354,100 MT for delivery in 2009/10 were up 65 percent from the previous week and 1 percent from the prior 4-week average. Increases were reported for Japan (475,200 MT), China (239,000 MT), unknown destinations (162,000 MT), Egypt (98,000 MT), Costa Rica (68,100 MT), Peru (61,600 MT, including 55,500 MT switched from unknown destinations), and Colombia (58,900 MT). Decreases were reported for Mexico (43,100 MT). Net sales for 239,000 MT for delivery in 2010/11 were for China (130,000 MT), unknown destinations (58,000 MT), Japan (40,000 MT), and Nicaragua (11,000 MT). Exports of 978,900 MT were down 5 percent from the previous week and 1 percent from the prior 4-week average. The primary destinations were Japan (245,700 MT), Mexico (215,200 MT), South Korea (165,400 MT), Peru (83,000 MT), and Egypt (82,100 MT).
Barley: There were no sales or exports reported during the week.
Sorghum: Net sales of 118,700 MT were reported for Mexico (89,600 MT), unknown destinations (14,900 MT), and Japan (14,200 MT). Exports of 87,000 MT were to Mexico (69,300 MT) and Japan (17,700 MT).
FOB
DISTILLERS DRIED GRAINS WITH SOLUBLES (DDGS)
The general consensus among traders this week was that the market is soft and moving slowly lower. The down trend in corn and energy prices is leading the way. The seasonal price weakness relative to corn is normal for this time of year so this is not surprising news. However everyone seems to be keeping a close eye on exports as a source for market direction. Late in the week there was a rumor that Asia (maybe China) would be back in to buy some bulk shipments and that this could sustain prices a little bit longer. The other feed ingredients such as Canola Meal and Soy competing with DDGS are starting to drop in price as well. Ethanol margins are in some locations negative and therefore will discourage increased DDGS production into the summer. The pending legislation and regulatory changes to use of ethanol in the United States will have a big impact on future DDGS production and export availability. The overall weakness in the world economy and the instability of currencies seem to be the main drivers of lower prices this week.
Exports:
- Container exports to Southeast Asia were slow this week, one broker reported about 20 percent of normal volumes. There is some talk from the container lines that they are considering lowering their rates to be competitive with bulk rates to regain some market share of the export feed market.
- January – March exports are up 94 percent over 2009 at 1.872 million tons.
Domestic:
- On the domestic front the dairy producers are just barely breaking even and are not inclined to pay higher prices for feed at the moment. This also tends to increase use of forage and buy higher energy feeds on month to month basis.
- Canola meal prices are now competitive to DDGS prices in California. Some culling of the dairy herds in California is occurring due to poor milk prices relative to feed costs.
COUNTRY NEWS
Argentina: Corn prices have fallen around three percent to $165-166/MT (+65cN) as buyers have taken a wait and see position. Exporters are nervous about impending competition from Brazil. Meanwhile, most of the 630 KMT in sorghum export licenses have been utilized with prices around 50 cents/bushel below July corn futures and most of it going to Japan.
China: China has already purchased and it was reported that two additional cargoes were purchased with discussions that total purchases may reach 1.5 MMT by COFCO. Overall sales of two to three MMT across the two marketing years seems possible.
Brazil: The government is expected to soon announce export subsidies that will push out 10 MMT of surplus corn in weekly tenders of about 1 MMT each. Prices are currently about +$8-12/MT over Argentine offers.
India: The third advance estimate of the 2009/10 maize crop was cut by more than 15 percent to 16.32 MMT. The government is investing in infrastructure and some are encouraging greater agricultural diversification including boosted livestock production.
Paraguay: With 800 KMT to 1 MMT of surplus corn to sell post 15 August, Paraguay is offering prices just below Argentine origin, though logistics are more complicated.
Russia: While internal prices are end of the season bearish (corn -$8/MT; barley -$1.50/MT; feed wheat -$3/MT), export prices are feeling bullish as expiring contracts are forced to perform amidst fewer offers.
Ukraine: Though export prices remain firm, a lack of export demand is pushing internal market prices lower (- 1 to 2 dollars) for feed wheat, corn and barley. With barley prices $20/MT below feed wheat, farmers are refusing to sell
OCEAN FREIGHT MARKET AND SPREADS
OCEAN FREIGHT COMMENTS
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: It was another surprisingly strong week in world freight markets. That makes it three weeks running that things have been on the upside. Today we are hearing some talk about a topping of rates and that the run up may be running out of steam, at least for now. Aside from strong demand from China, there was also good seasonal demand growth to the continent. Most of the strength has been in the North Atlantic and Baltic-Med. markets. North American grain business has not been affected as much as these other markets.
Iron ore and Coal prices to China have been coming down and business is slowing a bit.
On the supply side; we saw 19 new ships delivered this week, 13 of which were Dry-Bulk carriers. The freight market remains inverted by about $5.00/mt out to the new crop O-N-D period.
As for the U.S. Gulf of Mexico oil spill; it is still spewing oil and remains a problem. Fortunately it has not yet seriously disrupted vessel traffic into or out of the Mississippi River or Mobile, AL. All commercial vessel loading activities are continuing, and are expected to do so for the foreseeable future. Cleaning stations have been set up in the event that the cleaning of vessel hulls is needed; none have been preformed yet.
The only financial impact on vessels in the area is that they are being routed around the oil slick zone and are incurring a little extra transit time and extra pilot frees. Vessel owners have been advised to file a claim directly with B.P. for any extra costs incurred.
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: $9.60- $9.90
Three weeks ago: $10.80-11.25
One week ago: $14.50-15.00
This week $13.50- 14.00(Down $1.00from last week).
In dollar terms, the current spot and 30 day U.S. Gulf to Japan Panamax market is currently near $73.00/mt. The 30 day Panamax rates from the PNW to Japan are approximately $43.00/mt. The PNW/Gulf freight spread to Asia is approximately $30.00/tonne (.74/bushel for corn and .79/bushel for wheat and soybeans).
INTEREST RATES
