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CHICAGO BOARD OF TRADE MARKET NEWS

Outlook:  The usual tack for aggies is to hold one’s cards close just before a major supply/demand report like the July WASDE, but apparently not the speculative players.  They bought 36,000 to 40,000 contracts of grains and oilseeds just one day before the release of this fabled report by USDA.   They were rewarded as the WASDE gave bearish news on wheat but projected 2009/10 corn stocks down by 8 percent and lowered the forecast 2010/11 ending stocks by 12 percent.  If the final output is as predicted, it will be the smallest surplus corn situation since the 2006/07 marketing year.  Though that will only be if weather and other factors do not change the circumstance once again.

CBOT JULY CORN FUTURES

Current Market Values:

U.S. WEATHER/CROP PROGRESS        

U.S. Drought Monitor Weather Forecast: The next five days (July 8–12, 2010) should finally bring some precipitation to the central and northern Eastern Seaboard, with totals of 1 to 2 inches forecast for eastern North Carolina and from northern Maryland northward through southeastern New York. Generally 0.5 to 1.0 inch is expected in the remaining D0 to D2 areas in the East, and across the areas of dryness and drought in the Great Lakes region as well. Moderate to heavy rain is also expected in most of the dry areas from Texas eastward through Alabama and northward across southeastern Missouri, except for the southern half of Louisiana. Totals over 1.5 inches should be widespread across central and north-central Texas, southeastern Oklahoma, northeastern Arkansas, and southeastern Missouri, with amounts of 3 to 5 inches expected in a swath from north-central Texas northeastward to south-central Missouri. Amounts should be lighter from the Rockies westward, with totals greater than 0.5 inch forecast only for east-central Arizona and adjacent New Mexico, and central Colorado.

For the ensuing next days (July 13–17, 2010), the odds favor above-normal precipitation across all but southeastern sections of Alaska, and in a broad swath from western Texas northward through the central Great Lakes and eastward to the Atlantic Ocean, except in New England and adjacent sections of the Northeast. In contrast, below-normal amounts are favored from the northern High Plains westward to the Washington and Oregon coasts. Neither abnormally wet nor abnormally dry conditions seem favored elsewhere. 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 501,200 MT for delivery in 2009/10 were down 23 percent from the previous week and 48 percent from the prior four-week average.  Increases were reported for Japan (215,700 MT, including 80,200 MT switched from unknown destinations and decreases of 44,400 MT), Egypt (72,000 MT), China (60,600 MT), Canada (40,900 MT), Venezuela (36,600 MT), Taiwan (28,500 MT), and Peru (27,800 MT, switched from unknown destinations).  Decreases were reported for unknown destinations (58,100 MT), Colombia (45,500 MT), and the Dominican Republic (16,500 MT).  Net sales of 324,800 MT for delivery in 2010/11 were mainly for Mexico (140,000 MT), Japan (97,500 MT), and unknown destinations (76,200 MT).  Optional original sales for delivery in 2010/11 were declared U.S. origin for South Korea (55,000 MT).  Exports of 1,030,500 MT were up 8 percent from the previous week and 10 percent from the prior four-week average.  The primary destinations were South Korea (226,300 MT), Japan (223,600 MT), Egypt (116,200 MT), Mexico (104,400 MT), China (60,500 MT), and Syria (53,500 MT).

Barley:  There were no sales reported during the week.  Exports of 1,600 MT--a marketing-year high--were to Canada (1,300 MT) and Mexico (300 MT).  

Sorghum: Net sales of 4,800 MT were reported for Japan.  Net sales of 50,300 MT for delivery in 2010/11 were for Mexico (34,000 MT) and Japan (16,300 MT).  Exports of 14,200 MT were to Japan (12,900 MT), Mexico (1,200 MT), and Canada (100 MT). 

FOB

Distillers Dried Grains with Solubles (DDGS)

DDGS values are up from +$3.00-to $8.00 depending on the destination delivery point. However DDGS values are still at at a discount to corn and some other substitute ingredients. In past years DDGS traded at a bigger discount to corn by July and August so in retrospect these values are pretty good. There has been a recent increase in the price of corn gluten feed as well as DDGS which is supportive to the market overall for mid-proteins. A delay in the start up of a major Canadian canola processing plant that delayed delivery of canola meal into California, so corn gluten feed and DDGS were two of the next best cheaper substitute feed ingredients. This may not be a long term protein shortage trend, however as the plant in Canada is expected to be up and running and delivering canola again soon.

Domestic Market:

The prices for DDGS FOB Midwest ethanol plants ranges from 104.00 to 120.00 per metric ton or ($95-108.00/st).  The domestic demand has been supported recently due to the shortage of canola mentioned above, however, it would misleading to say that domestic demand is very strong right now.  The ongoing story is that demand in the swine sectors is limited in some regions by the Vomitoxin issues, the cattle sectory by maximum use in the rations to gain maximum feed efficiency, and the poultry sector is still in increasing slowly but is limited by the variable qualities from different origins.  In order  for DDGS to access more domestic demand prices would have to be lower relative to corn and other ingredients to make it worthwhile pushing it further into the diets.

Export Market:

• Mexico was a steady buyer of DDGS this week, characterized as a normal amount of weekly buying.
• Container business to Asia was noted as “very slow” by one broker (perhaps due to freight differentials with bulk).
• Canadian demand is limited due to the late deliveries on contract in May are now being pushed into June and July backing up supplies and causing consternation among the cattle feed sector.  DDGS is competitive in the swine rations still but we are pushing the limits on quality and percentage use in the rations.
• Bulk barge and FOB export business was good this week with solid bids from the major exporters out of the Gulf. We do not have specifics on who sold what to where but there were steady trades of barges absorbing some of the overflow from the container markets. The lower bulk ocean freight numbers were supportive of increasing this business as well. Gulf Japan freight down into the $50.00 mt range is -$20.00 mt lower than a few months ago. The container lines will need to catch up or suffer the losses of cargo. Slowing demand out of China seems to be the driving factor for that market, which does not bode well for DDGS demand either, as an indicator of the economic trend.

 Special report on Taiwan and DDGS Exports:

As for the U.S. market share, U.S. DDGS imports in Taiwan during January-May 2010 were 76,786 MT, decreased by about 3.5 percent if compared with 79,557 MT during the same period in 2009.

Taiwan is decreasing it’s usage of DDGS, decreased by about 6 percent or 3.5 percent, for following two major reasons, prices and mycotoxins:

Prices:

The authorities temporarily removed the 5 percent business tax for corn, soybeans, wheat and barley, but not including DDGS, from March 10, 2008 to June 9, 2010. Therefore, in the first half of 2010, the prices of DDGS were at least 5 percent higher than that of corn.

It is anticipated that this temporary removal of the 5 percent import duty on other feed ingredients will be reinstated in July and therefore bring a gradual resumption of the growth of DDGS into Taiwan during the second half of the year

COUNTRY NEWS  

Argentina:  The corn to soybean spread, bolstered by news of U.S. corn stress kept local prices above Brazil’s offers.

Brazil:  Corn for July/August traded at $165/MT a few weeks ago but now sells briskly at $175/MT. 

EU:  Hot, dry weather has feed millers looking more intently at South American suppliers.

India:  Heavy rainfall has delayed corn planting in central India.  Only 13 percent  has been planted in Uttar Pradesh with a final planted number expected 15 July.

Iran:  Import duties on corn may be raised by 4-20 percent from August onward to benefit local conditions, which would impact South American suppliers and push their supplies elsewhere in the world.

Russia:  Media reports on the drought have spiked grain prices, but currency exchange and freight rate impacts should lessen any competiveness problems. 

Ukraine:  Feed wheat and barley (-$7/MT) prices continue to fall with corn ($175-180/MT FOB) stable for now but expected to follow. 

OCEAN FREIGHT MARKETS AND SPREADS

OCEAN FREIGHT COMMENTS               

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting:  Ocean freight markets are still in a free fall. The Baltic Dry-Bulk index has been down for 29 days in a row. Tomorrow may make 30? As goes China so goes the world freight markets. It’s always dangerous for any market to put its fate in the hands of one player, but that is what the freight market has done. And it’s difficult to determine just what China will or will not do; and how fast they will do it. But what happens with Chinese economic development rules what happens in the freight markets. As it is playing out, Chinese economic development and its steel production has slowed. With Iron ore prices inverted out to Oct.-Nov. there is no incentive or rush to buy spot. Additionally Chinese industries are using more domestically produced iron ore and this has lowered their import needs. Warmer than normal temperatures in northern China have also reduced the demand for thermal coal. All the while new vessels are being delivered each week and the world fleet is steadily growing. On average a new Capesize vessel is delivered every two days.

According to Clarkson Research, the world Dry-Bulk fleet is expected to grow by at least 16 percent or 1,100 ships this year (an average of 21 new ships per week), while vessel demand is estimated to increase by the equivalent of only 634 ships. So the cards seem to be on the table, and they do not seem to be friendly towards vessel owners. Year to date 98 new Capesize vessels have been delivered verses 112 for all of last year.  Year to date 79 new Panamax vessels have been delivered verses 86 for all of 2009. Even with anticipated shrinkage (order cancellations), the world fleet is expected to grow by 69 million DWT in 2010.

World freight markets are now back to the levels of early May 2009.  It was just 3 ½ months ago that the Baltic Dry-Bulk indexes reached their calendar year highs.  The Baltic Dry-Bulk Panamax index has dropped 52 percent since March 2010. During the same time period, physical rates to Asia have dropped from $72.00 to $51.00/mt from the Atlantic/Gulf while the Pacific market has gone from $43.00 down to $27.00/mt. We now have rates back to the general levels traded in 2004-2005. After a 52 percent fall in the index, one would expect to see some sort of leveling off, or at least a dead cat bounce, before things continue on their particular way. The Gulf-PNW freight spread to Asia is now close to $24.00/MT.

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:           $9.75-$10.00
Three weeks ago:         $8.50-$8.90
One week ago:              $8.45-$8.75
This week                       $7.70-8.20 (Down slightly from last Friday)

In dollar terms, the current spot and 30-day U.S. Gulf to Japan Panamax market is currently near $51.00/mt.   The 30-day Panamax rates from the PNW to Japan are approximately $27.000/mt. The PNW/Gulf freight spread to Asia is approximately $24.00/tonne (.61/bushel for corn and .65/bushel for wheat and soybeans).

INTEREST RATES