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 CHICAGO BOARD OF TRADE MARKET NEWS

Outlook: This week saw the biggest two-day rally in corn prices since the drought-induced spike in 1988. Surplus rain in the Midwest has taken a minor toll on corn quality, but it still ranks among the better crops at this time of year.  The cash market had been strengthening as farmers held onto their crop, but they understandably sold into the mid-week rally.  Export volume was down this week and there were no sales to China.  For the month of June, corn was up then down then up, down and ending up – basically prices made a W.  Good weather may claw back some of the end of the month rally, but no one should expect a linear market from here to harvesting.

CBOT JUNE CORN FUTURES
 

Current Market Values:

U.S. WEATHER/CROP PROGRESS                                                                                            

Moisture fueled at least partially by Hurricane Alex will dump heavy rain along most of the Gulf Coast during the first five days of July 2010. At least 2 inches should fall on the southern half of Louisiana and a large part of southern and southeastern Texas, with totals of 4 to 8 inches possible in Texas south and west of Galveston. More modest amounts of 0.5 to 2.0 inches are expected over the rest of Texas and Louisiana, southwestern Oklahoma, most of the dry areas across the Great Lakes region, and the southeastern Carolinas. Meanwhile, little or no rain is anticipated in most areas south and west of Montana, and from most of North Carolina northward through central New York.

The ensuing five days (July 6-10, 2010) feature enhanced chances for above-normal precipitation in the Alaskan Panhandle and in a broad swath from the Gulf Coast and Texas northeastward through central and eastern sections of the Great Lakes region. Meanwhile, below-median precipitation is favored across northern sections of the Rockies, Intermountain West, and West Coast. Neither abnormally heavy nor abnormally light precipitation is favored in any other current areas or dryness and drought. 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 649,700 MT for delivery in 2009/10 were down 42 percent from the previous week and 24 percent from the prior four-week average.  Increases were reported for Japan (314,700 MT, including 24,700 MT switched from unknown destinations and decreases of 40,200 MT), Egypt (105,700 MT, including 55,000 MT switched from unknown destinations), South Korea (60,100 MT), Venezuela (60,000 MT), Mexico (48,100 MT), Syria (20,800 MT, switched from Egypt), and the Dominican Republic (15,800 MT).  Decreases were reported for unknown destinations (68,600 MT).  Net sales of 76,500 MT for delivery in 2010/11 were mainly for Taiwan (61,500 MT) and Guatemala (14,900 MT).  Optional original sales for delivery in 2010/11 were declared U.S. origin for Taiwan (61,500 MT).  Exports of 952,400 MT were up 16 percent from the previous week, but down 6 percent from the prior four-week average.  The primary destinations were Egypt (286,600 MT), Japan (210,500 MT), Mexico (182,600 MT), South Korea (114,700 MT), Syria (20,800 MT), and Tunisia (18,600 MT). 

Barley: There were no sales or exports reported during the week. 

Sorghum: Net sales of 31,200 MT were primarily for Japan (24,000 MT, including 10,800 MT switched from unknown destinations) and Mexico (18,100 MT).  Decreases were reported for unknown destinations (10,800 MT).  Net sales of 21,000 MT for delivery in 2010/11 were for Mexico.  Exports of 60,800 MT were mainly to Mexico (36,700 MT) and Japan (24,000 MT). 

FOB

DISTILLERS DRIED GRAINS WITH SOLUBLES (DDGS)

As mentioned above in the corn comments, the price of corn surged late this week up about $11.00 per mt. DDGS responded in a similar but sluggish manner moving up from the lows of the weeks prices about $10.00 mt, but it had sunken lower than corn during the week showing a meager change in prices from last week’s close. The demand for exports is still slow compared to January-April (see below). We do not have the actual exports for May-July yet, however anecdotal reports from exporters indicate a slowdown in demand the last few weeks. The profit margins for ethanol plants have been reduced or put into the negative territory the last few days with corn prices rising and petroleum prices dropping at the same time. There are some apparent contradictions in the major market indicators, signs of global economic slow growth or no growth, even China showed some lower-than-expected growth numbers this month. The Sovereign Country debt issues in the U.S. and EU are still hanging over the market, making investors less than bullish about the stock market (The Dow drops well below 10,000 again this week). Then late in the week there was a big rally in corn prices based on USDA’s lower stocks report, which also seems contradictory to the lower livestock numbers and implied reduction in feed demand. Congress and the EPA continue to debate the approval of the 15 percent blend of ethanol into Gasoline in the U.S., which is also limiting increases in production and profitability of ethanol plants.

Domestic Market:

• Ethanol plants are offering DDGS through September 2010 but not much further out due to lack of profit margins looking forward. POET acquired another ethanol plant in Cloverdale Indiana with a capacity of 90 Million Gallons, bringing the company to a total production capacity of 1.7 billion gallons per year
• The poultry demand is good with news that major producers bought last week up to about 50 thousand tons.
• Dairy demand is steady in California this week; no major changes but solid buying in trucks.
• Not much to report in Canada, but the January April numbers sure look promising.
• Mexico demand is steady by about 20 thousand tons regular buying from poultry sector is supportive. 

Export Demand:

• The January April exports are out and as you can see below they are up 94 percent over the same period in 2009, an increase of an impressive 1.266 MMT in just the first four months of the year. If we stay on track we will be up +2 mmt by the end of the calendar year. Assuming this as trend (which we do not), it would mean exports at 7.8 mmt by the end of December 2010. We think we will see a seasonal summer slowdown in some markets (like China). There are so many “what if’s” it is hard to predict this year, such as the corn production in China, the global wheat production and exports, canola and canola meal exports will all weigh in on our final numbers.
• The Bulk DDGS CIF NOLA Barge market was weak but stabilized later in the week.
• Container markets were very slow; this caused some truck deliveries to the river market instead of container trans-load sites which was the cause for weakness in the barge market earlier in the week.

Weekly Trader/Exporters Comments: (Anonymous)

• “In general, a quiet week with little trading.  With the bump in the board interest is up.  More calls and inquiries but not translating into action yet.  If the board holds through the holiday and next week, I expect some business to be going on.  General values at mid $220’s to mid $230’s destination port on containers.”
• “I had offered $221/MT to Shanghai/Qingdao for August, as well as $230/MT for Huangpu China and no reply.   I was told Huangpu is $226 level.'
• “For Laem Chabang, it was offered $220/MT for August by someone when I offered my very best at $225/MT.  This number was sold to CP by (Company B) yesterday.  I did sell to a smaller mill at this price for only 10 cans.”

 COUNTRY NEWS

Argentina:  Corn sold to Peru at 66 cents/bushel above September futures.  Exporter margins have fallen in half due to the drop in Chicago futures prices and reduced farmer selling.  

Brazil:  The freight advantage out of Paranagua over Argentine origin corn is worth $5-6/ton.  Cargoes for August shipment are selling at $168/MT FOB, and the government held an auction for leilaos (subsidies) on 970,000 MT.

Bulgaria/Romania:  Continued rains have delayed the barley harvest by three weeks creating demurrage charges at ports, plus quality problems that are resulting in some rejections at port.

EU:  Export licenses for 149 KMT of barley were issued this week, bringing the campaign total to 1.367 MMT, or about 40 percent of the volume of last year.  Feed barley and feed wheat prices are strengthening as a result of stronger export demand.

Philippine:  The Filipine Department of Energy is asking lawmakers to remove a mandate to blend ethanol with gasoline due to complaints about creating a deficiency of corn in the market.

Russia:  Grains in southern areas are bearish even as they increase in drought-stricken zones (Volga Valley, part of Black Soil, Southern Urals). Crops are expected to be smaller, but sales are also weaker this year.

Ukraine:  Feed barley continued to drop, taking a $6/MT cut this week and offered at $134-135/MT FOB with more cuts expected.  Corn prices are expected to remain stable at $174-175/MT FOB Black Sea.

OCEAN FREIGHT MARKETS AND SPREADS                                                                           

OCEAN FREIGHT COMMENTS                                                                                                   

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting:  Last week I mentioned that it was hard to find anyone who was bullish on freight; other than some hopeful or stubborn vessel owners. This week proved out the market theory of too many vessels chasing too little freight. At the moment the market is feeling pretty sick. Personally I‘m still bearish freight looking out to the end of 2010, but it would be reasonable to expect the cost reduction to occur in more of a stair-step fashion; so we should see some leveling out, or even a small bounce up, before things settle to work their way lower by the end of the year. But the past two weeks have been more of a free fall. Last week 38 new vessels were delivered, most of them Dry-bulk and some tankers.

World freight markets are now back to the levels of early October 2009 and, since March of this year, the Baltic index has dropped 40-41 percent (Atlantic index at 48573 or $72.00/mt on 23March 2010 and the Pacific index at 32143 or $42.00/mt). At best guess the Gulf-PNW freight spread to Asia is now $25-$26.00/MT. As it stands the market drop has narrowed the inverse between the 30-day positions and the Oct.-Nov.-Dec. slots.

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 sometime in August 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:          $12.50-$13.00
Three weeks ago:        $9.75-$10.00
One week ago:             $8.50-$8.90

This week                      $8.45-8.70 (Down slightly from last Friday)

In dollar terms, the current spot and 30-day U.S. Gulf to Japan Panamax market is currently near $56.00/mt.  The 30-day Panamax rates from the PNW to Japan are approximately $30.50/mt. The PNW/Gulf freight spread to Asia is approximately $25.50/tonne (.65/bushel for corn and .69/bushel for wheat and soybeans).

INTEREST RATES