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CHICAGO BOARD OF TRADE MARKET NEWS
Outlook: The weather outlook, hot and dry weather to follow on the heretofore wet conditions is what would be called perfect weather for corn. Thus corn futures contracts have given back half of their past rally. One can try and find some bullish news; Chinese corn purchases; continued rains in the upper Northern Plains with delayed corn planting – but this is not a major production area. In short, it is hard to bet against a bumper crop. Some in the trade expect that the 30 June acreage and stocks report could increase corn acreage and raise stocks due to slower use.
CBOT JUNE CORN FUTURES
Current Market Values:
U.S. WEATHER/CROP PROGRESS
Over the next two days, a cold frontal system will push across the Great Lake states and the Northeast, which could possibly bring some much-needed relief to the drought-stricken areas in that region. Excessive heat will continue to be a factor in the Gulf Coast states over the next U.S. Drought Monitor period. In general a trough will begin to settle in the West and the East, and a ridge will form in the central states over the next week and beyond. Warmer than average temperatures will then dominate the Heartland going into the extended six to ten day period.
Over the next six to ten day period, outlooks are projecting above normal temperatures throughout the central United States, including many areas that have been in developing drought conditions, from the Dakotas to Texas. Warmer temperatures in combination with the forecast below normal precipitation centered on Kansas will be a welcome change for those in Nebraska and South Dakota who have experienced large scale flooding this spring. But this same forecast could worsen drought in western Oklahoma and northern Texas. Above average precipitation is forecast in the Southeast for this period. 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 1,123,400 MT for delivery in 2009/10 were up 3 percent from the previous week and 35 percent from the prior four-week average. Increases were reported for Japan (442,300 MT, including 77,400 MT switched from unknown destinations and decreases of 28,800 MT), China (230,000 MT), Egypt (186,000 MT), Saudi Arabia (121,100 MT, including 113,000 MT switched from unknown destinations), South Korea (52,600 MT), Colombia (49,600 MT, including 35,500 MT switched from unknown destinations), and Mexico (33,700 MT). Decreases were reported for unknown destinations (170,400 MT), Guatemala (11,800 MT), the French West Indies (4,800 MT), Peru (4,300 MT) and Chile (3,800 MT). Net sales of 332,300 MT for delivery in 2010/11 were mainly for South Korea (115,000 MT), Guatemala (65,400 MT), and unknown destinations (61,000 MT). Exports of 818,100 MT were down 24 percent from the previous week and 27 percent from the prior four-week average. The primary destinations were South Korea (159,700 MT), Saudi Arabia (124,100 MT), Japan (111,500 MT), Mexico (111,100 MT), Colombia (69,200 MT), and Egypt (52,100 MT).
Barley: There were no sales or exports reported during the week.
Sorghum: Net sales of 8,400 MT were reported for Mexico (7,000 MT) and Japan (2,500 MT, switched from unknown destinations). Decreases were reported for unknown destinations (1,100 MT). Exports of 7,300 MT were to Mexico (4,800 MT) and Japan (2,500 MT).
FOB
DISTILLERS DRIED GRAINS WITH SOLUBLES (DDGS)
The DDGS market ended up largely unchanged for the week after a $5.00 mt rally and retreat back to the same levels from last Friday. Overall demand is slowing into the summer and although the trend for consumption is up the seasonal effects and reduction of export demand is weighing on the market. The Council held some seminars in China this last week that were well attended at venues that are located in regions that are not already consuming higher levels of DDGS in the rations. (Nanjing and Fuzhou). The trend in consumption and rates of adoption in China indicate that we could reach 2 mmt of exports by the end of the year if all goes well. The domestic market although using record volumes of DDGS is becoming increasingly saturated in terms of the levels of DDGS use in the diets of the various livestock sectors. On a positive note, there is hope that livestock feeding margins are improving and therefore should help demand recover longer term. The hazardous cargo issue for DDGS in bulk shipments is improving as the U.S. Coast Guard has submitted an application to the International Maritime Orginazation Bulk Cargo Safety Committee to have it classified as Non Hazardous per their bulk cargo safety codes. The results of the tests referenced in the application indicate that it is in fact a safe non self heating cargo, therefore, we remain hopeful that it should be classified accordingly.
Domestic Market:
FOB Midwest ethanol plant prices are about $80-95.00 per short ton, with continued offers from the plants through July and August. Domestic trade was healthy into the cattle sector, with poultry, and swine being relatively quiet. Ethanol plant margins are hovering fom the break even level to the slightly positive level this week
Export Demand:
Export demand is still strong and growing at rate of about 95 percent above last year at this time, with China and Asia leading the way in consumption growth. In terms of China, we continue to find that DDGS and U.S. corn are at a healthy discount to local Chinese corn by about -$15-20.00 per metric ton to most major grain deficit regions of the country. Therefore, we expect to see continued buying of both DDGS and corn for the balance of the year reaching approximately 2 mmt for DDGS and 1 mmt for U.S. corn. Chinese corn prices, depending on the location delivered to feed mill in proximity to the ports, is about $285-$310.00 mt, and they are still struggling to increase corn production above the growth in total feed demand. In the near term (next 6-9 months), there has been a reduction in feed demand due to overproduction in some regions. This has caused a short term glut of proteins in the market, reducing the demand for DDGS and soybean meal, for which there is no storage capacity to manage these fluctuations in demand for. This may continue to weigh on the U.S. market price for the next few months
On a more positive note, we see the trend in demand growth globally in the protein sector due to a lack of fishmeal supplies which are forcing feed mills to replace that valuable proteins with the next cheapest alternative.
Asian container demand was very light again this week, and some traders have reported about 25 percent of their normal demand
The barge market has also shown some signs of weakness with declines in bid prices CIF NOLA that in turn has impacted the domestic truck market. Mexico was a steady buyer this week, as we heard of about 20 tmt sold there. The demand was deemed to be eminanating from from the cattlemen and the poultry users.
COUNTRY NEWS
Argentina: Corn is quoted at +68 over Chicago September futures for July shipment, slightly lower than Brazil, but all is quiet.
Brazil: Both Iran and Colombia are indicating Brazilian corn as a preference, though the government just suspended the Leilaos or subsidy program for corn in order to study the situation. Trading houses complained that farmers were not selling to them based on the producers’ receipt of the subsidy and thus exporters were charged rates above the export market level. Still, sellers are trying to intrigue Japanese and Malaysian buyers with offers of $171/MT July.
Canada: The Stats Canada June estimates report was actually bearish, indicating barley at 8.05 million acres, down 7 percent, and oats at 3.74 million acres, a slight rise above last year. However, not even Stats Canada is taking them at face value with the agency predicting considerable change in its next report.
China: Rumors of additional U.S. corn sales to the China continue, with some estimates of 1.2 MMT sold thus far and a total of 2 MMT possible. The government sold 587,000 MT out of 1 MMT offered in its weekly auction of reserve corn.
Israel: A purchase of 20 KMT of barley ($139/MT) and 60 KMT of feed wheat ($158/MT) was made, and these prices are $5/MT lower than standard vessel rates due to the use of Russian Azov Sea coaster vessels.
Russia: Barley prices are expected to be $10-16/MT lower than in 2009, or about $145/MT FOB Black Sea.
Ukraine: Feed barley prices fell to $135-136/MT, but corn rose $1/MT to $174-176/MT FOB Black Sea. However, the corn market is expected to stabilize and not rise much further. Meanwhile, the grain industry has appealed to the government to discharge is debt of VAT refunds to exporters.
OCEAN FREIGHT MARKETS AND SPREADS
OCEAN FREIGHT COMMENTS
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: It’s never boring in the freight markets; something is always happening. This week saw freight markets attempt to bottom out and even rally slightly. The Baltic Panamax index ended up slightly from last week. The real problem for vessel owners, however, is that the Capesize market has collapsed. Cape freight hire rates have gone from $55,000 per day two weeks ago to about $25,000 per day this week. Over all, it’s just a continuing case of more vessels chasing the same amount of freight business. Vessel demand remains good, but the fleet is growing every month and weighing heavy on the markets. Even with the small rally in the Baltic index this Wednesday and Thursday, the market was left feeling softer on Friday.
There are varying opinions of just where the Gulf and PNW Panamax markets are to Asia as we close the week. Brokers and Grain exporters have called the Gulf market anywhere from $60 to $62.00/MT. PNW reports range from $30 to $35.00/MT. It just depends on the vessel age, size and exact position you are looking for. It doesn’t seem that anyone is bullish on freight values going forward, and the forward curve on afreightment contracts is still inverted. At best guess the Gulf-PNW freight spread to Asia is close to $28-29.00/MT.
It is unlikely that the Gulf/Atlantic market has actually dropped by $5.00/MT over the last week and the value difference in this report is probably a result of the difficult task of trying to keep up with a rapidly declining market. As for the U.S. Gulf of Mexico oil leak; it’s much of the same story. The oil leak continues. 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. Cleaning is done with high pressure hoses. Vessels moving through the oil slick have not required cleaning but vessels at anchor in the oil have.
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: $12.50-$13.00
One week ago: $9.75-$10.00
This week $8.50-8.90 (Down $1.00-$1.25/MT from last Friday)
In dollar terms, the current spot and 30 day U.S. Gulf to Japan Panamax market is currently near $62.00/mt. The 30 day Panamax rates from the PNW to Japan are approximately $33.00/mt. The PNW/Gulf freight spread to Asia is approximately $29.00/tonne (.74/bushel for corn and .79/bushel for wheat and soybeans).
INTEREST RATES
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