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 CHICAGO BOARD OF TRADE MARKET NEWS

Outlook: The best feed grain drama of the week was actually about oats.  Once a major crop in the day of horse and buggy, it has been reduced to a mere specialty crop.  But there is less room for shortfalls in a specialty crop, and particularly not the 20 percent decline in Canadian production.  Oat futures have been up as much as 45 percent as a result.  The corn crop provided a much smaller drama with USDA issuing a crop condition assessment of 77 percent at good/excellent.  It must be a near record for the first half of June and, although it is not wholly indicative of the final crop, it nonetheless imposes a strong psychological burden on a market.  While some outlier models now project a corn yield of 168 bushels/acre (13.8 billion bushels), they are likely over the top.  Still, on the current track it is very likely that USDA will raise its yield estimate (163.5 bushels/acre) in the July and/or August WASDE.  A non-weather factor is the announced delay in U.S. EPA raising the ethanol blend rate, but that may have less effect on corn than the potential for more low-protein wheat available as an alternative feed.  The main question for bulls is how much more corn will be bought by China?  One conclusion after this past week is that the animal spirits now lean toward a near-term end of the heretofore deep bearish mood.

 CBOT JUNE CORN FUTURES

Current Market Values:

U.S. WEATHER/CROP PROGRESS                                                                                            

U.S. Drought Monitor Weather Forecast: Over the next five days (June 17-21) temperatures are expected to be warmer than normal over much of the eastern United States and into the High Plains. Temperatures will range from six to nine degrees Fahrenheit above normal over Kansas and Oklahoma, to 12 degrees Fahrenheit below normal in Montana.  The western United States will have temperatures below normal during this time. An active precipitation pattern will be observed along the northern portions of the United States and along the southeastern coast.  Precipitation is expected over Montana, Iowa, southern Wisconsin and Florida.

The Climate Predictions Center’s (CPC) six to 10 day forecast (June 22-26) expects temperatures to be well above normal over the eastern half of the United States, with the greatest anomalies over Arkansas.  Cooler-than-normal temperatures over California and Oregon should be expected as well.  The wet pattern should persist over the northern United States and drier than normal conditions over the southern plains and into the central Rocky Mountains.  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 1,090,400 MT for delivery in 2009/10 were up 7 percent from the previous week and 21 percent from the prior four-week average.  Increases were reported for South Korea (156,800 MT), Japan (135,700 MT, including 67,500 MT switched from unknown destinations and decreases of 19,200 MT), Egypt (126,500 MT), China (120,000 MT), unknown destinations (102,800 MT), Mexico (90,900 MT), and Taiwan (62,600 MT).  Net sales of 136,500 MT for delivery in 2010/11 were mainly for Costa Rica (96,000 MT), South Korea (55,000 MT), and unknown destinations (25,400 MT).  Decreases were reported for Egypt (55,000 MT).  Optional origin sales were reported for South Korea (48,000 MT).  Exports of 1,073,000 MT were up 18 percent from the previous week, but down 2 percent from the prior four-week average.  The primary destinations were Japan (422,500 MT), Mexico (192,700 MT), South Korea (157,100 MT), Egypt (96,900 MT), the Dominican Republic (60,400 MT), and Cuba (27,500 MT). 

Barley: Net sales reductions of 2,500 MT were reported for Canada.  There were no exports reported during the week. 

Sorghum: Net sales of 69,300 MT were reported for Mexico (53,800 MT), Japan (10,800 MT, including 10,600 MT switched from unknown destinations), and unknown destinations (4,600 MT).  Net sales of 19,000 MT for delivery in 2010/11 were for Mexico.  Exports of 102,400 MT were to Mexico (77,400 MT) and Japan (25,000 MT). 

FOB

DISTILLERS DRIED GRAINS WITH SOLUBLES (DDGS)

DDGS prices are higher this week following the trend in corn and canola meal prices. There has apparently been a massive loss of planted acres of canola seed in Canada due to a very wet spring season. In addition, there has been good buying for bulk export CIF NOLA.  There was some talk in the export trade that the surge in prices was in response to new sales to Turkey where the GMO issues seemed to be getting resolved. This is an unusual trend in prices for this time of year, and it will be interesting if it can be sustained in the weeks to come. It appears that DDGS is still competitive in China but so far no big reports of new business this week.

Domestic Market:  DDGS demand from the poultry sector was good this week with buying of up to 70,000 tons. The start up of the new 300 million gallon ADM Cedar Rapids ethanol plant did not have the negative impact on DDGS prices that were feared by many suppliers.

Export Market: Demand has been strong this week for bulk DDGS CIF NOLA with talk mostly about new business to Turkey. Asian container demand was reportedly slower than normal this week with talk that China may be working its way through some inventories that built up over the previous months.  Increased sales to Mexico were noted and supportive of DDGS prices in the Midwest.

 COUNTRY NEWS

Argentina:  Corn remains priced ($170/MT) above Brazil.  

Bulgaria/Romania:  Combined, these two countries will have about 5 MMT of exportable mostly feed wheat, and corn yields are expected to be higher this year.  Barley yields are in line with expectations.  South Korea bought feed wheat at $191/MT, equivalent to $134/MT FOB.

Brazil:  Corn is priced around $168.40/MT and actually traded at $168/MT out of Paranagua, a port that has better shipping rates (though a recent fire may impact it).

Canada:  Barley plantings will be down 19 percent from last year as a result of heavy rains preventing work in the fields.

Indonesia:  Corn ex Gulf remained at $236-240/MT and $255 via contained.  DDGS (26 percent protein) was quoted at $265/MT and $310 delivered.  CGF was at $780 delivered.

Thailand:  Over  3 million hectares of agricultural area have been hurt by drought, affecting rice and sugar crops for sure and possibly others.

Ukraine:  Old crop feed wheat remains stagnant and falling in price, whereas the barley export price remained stable ($140-141/MT), and it is new crop that is $5/MT less than immediately available old crop. Corn prices remain stable ($174-176/MT) for export but there is resistance from buyers at this price.

Uruguay:  Paraguayan feed wheat is not worth exporting, but Uruguay has 100,000 tons of it for sale into the global feed market.  Meanwhile, Uruguay is out of corn and is buying some from Argentina and Paraguay.

OCEAN FREIGHT MARKETS AND SPREADS                                                                           

OCEAN FREIGHT COMMENTS                                                                                                   

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting:  This was a very interesting week in world freight markets. Rates not only continued their downward slide; but they declined and dropped off substantially. It was quite a sell off during the week the Chinese were on holiday. The reasons for the price drop remain the same; more vessels chasing less demand. The Chinese returned from their holiday today/Thursday, but that has not yet brought more demand into the markets. We’ll have to see what they can do next week. Vessel owners are certainly questioning the outlook for the balance of 2010. The freight markets continue to feel bearish and Dry-Bulk freight remains inverted by about $5.00/MT out to October.

As for the U.S. Gulf of Mexico oil leak; it’s much of the same story. The oil leak has been slowed considerably but continues to spew oil. B.P. is actively working on the problem but suggests that it may be weeks or months before the leak is fully controlled. Commercial vessel traffic continues to move into and out of the Mississippi River without serious disruption. Cleaning stations have been set up in the event that the cleaning of vessel hulls is needed; only one tanker vessel has been reported to need cleaning and that process delayed the ship by only 30 minutes. Cleaning is done with high pressure hoses. The only financial impact on vessels in the area is that they are being re-routed 20 miles 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:          $13.50-$14.00
Three weeks ago:        $13.50-$14.00
One week ago:             $12.50-$13.00
This week                      $9.75-10.00 (Down $2.50-$3.00/MT from last Friday)

In dollar terms, the current spot and 30-day U.S. Gulf to Japan Panamax market is currently near $66.50/mt.  The 30-day Panamax rates from the PNW to Japan are approximately $34.00/mt.  The PNW/Gulf freight spread to Asia is approximately $32.50/tonne (.82/bushel for corn and .88/bushel for wheat and soybeans).

INTEREST RATES