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CHICAGO BOARD OF TRADE MARKET NEWS

Outlook: Managed money funds have taken the largest long position in the agricultural commodities market since 2008.  Wheat is propping up corn, but the trade seems more focused for now on the bearish supply of maize than on any bullish demand signals. This is hazardous since the run on wheat futures is likely at its end and is due some retracement.  Futures prices running ahead of actual physical demand will be acutely tested when the 12 August WASDE is issued.  For the bulls, the feed wheat situation still supports corn but with some private forecasters sharing their bearish corn supply outlook, it is hard to maintain the height that has been reached in the corn market.

CBOT SEPTEMBER CORN FUTURES

Current Market Values:

U.S. WEATHER/CROP PROGRESS        

During the next five days (August 5-9), a cold front will track southeastward from the Midwest and stall in the Deep South, generating widespread showers and thunderstorms in the southeastern quarter of the Nation (approximately 0.5 to 2.5 inches of rain) and into New England. Moderate rains (1 to 1.5 inches) are also expected in the upper Midwest and from western Colorado across to southeastern Kansas, with a general decrease in the Southwestern monsoon rainfall totals (but not coverage) expected. The West, southern Plains, and eastern Great Lakes region should remain dry. Most of the lower 48 States should experience above-normal temperatures, especially in the south-central Plains eastward into the Tennessee Valley, while subnormal readings persist along the West Coast.

The CPC six to 10 day forecast (August 10-14) calls for subnormal precipitation in the middle third of the Nation and westward into the lower Pacific Northwest. Above-normal rainfall is expected in the northeastern quarter of the Nation and along the central and eastern Gulf Coast. Unseasonable warmth is forecast for the eastern two-thirds of the U.S. and northeastern Alaska, with subnormal temperatures confined to the West Coast and southwestern Alaska. 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 472,200 MT for delivery in 2009/10 were up 9 percent from the previous week, but down 15 percent from the prior four-week average.  Increases were reported for Japan (195,800 MT, including 71,200 MT switched from unknown destinations and decreases of 4,800 MT), Egypt (120,400 MT), Mexico (53,100 MT), China (52,300 MT), Saudi Arabia (44,000 MT), Taiwan (20,800 MT), and Venezuela (17,000 MT).  Decreases were reported for unknown destinations (45,300 MT), the French West Indies (4,400 MT), and Germany (2,700 MT).  Net sales of 821,900 MT for delivery in 2010/11 were mainly for unknown destinations (359,000 MT), Japan (185,000 MT), Mexico (182,300 MT), and China (60,000 MT).  Exports of 833,300 MT were down 31 percent from the previous week and 21 percent from the prior four-week average.  The primary destinations were Japan (391,300 MT), Mexico (76,900 MT), China (61,500 MT), Egypt (60,400 MT), Germany (57,300 MT), and Israel (55,600 MT).  Note:  Accumulated exports were adjusted down for Japan (26,200 MT) and adjusted up for Tunisia (26,200 MT).

Barley:  There were no sales reported during the week.  Exports of 100 MT were to Mexico.    

Sorghum: Net sales of 62,400 MT were reported for unknown destinations (60,000 MT) and Mexico (2,400 MT).  Net sales of 2,000 MT for delivery in 2010/11 were for unknown destinations.  Exports of 41,300 MT were to Mexico. 

FOB

DISTILLERS DRIED GRAINS with SOLUBLES (DDGS)

COUNTRY NEWS  

Bulgaria:  Some vessels are loading feed wheat for South Korea, Bangladesh and the Philippines. Though they were priced basis Ukrainian origin when they were sold a few weeks or months ago, it is impossible to execute them out of Ukraine today due to the absence of farmer selling.

Indonesia:  Corn import prices are running $260/MT on a C&F container basis, and $250/MT on a C&F bulk shipment. 

Russia:  Barley and corn prices followed wheat higher, though there were geographic differences with a more bullish situation in the Urals than in Siberia.  The wheat situation is exacerbated by producers refusing to part with their grain, which could send wheat to $300/MT, or nearly double its price of $170 several weeks ago.

Spain:  Buyers are not chasing the hot feed wheat market since they calculate that they can buy Brazilian corn about €10/MT cheaper, which ought to pressure feed wheat prices lower.

Ukraine: Wheat continued to pull the prices for barley (+$12/MT) and corn (+$12/MT) higher this past week.  Export prices were more varied with barley +$20/MT to $167-169/FOB and corn only +$5/MT to $185-188/FOB.  The reason is the larger export demand for barley versus greater domestic demand for corn by feed millers and a generally larger supply forecast.

United States: In addition to questions about whether Congress will extend the ethanol blenders tax credit, key Congressional leaders with energy oversight responsibility are probing intently to ensure that any increase in the allowable ethanol blend rate has first been thoroughly studied for potential adverse impacts. 

OCEAN FREIGHT MARKETS AND SPREADS

OCEAN FREIGHT COMMENTS               

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting:  Last week’s rally more or less ran out of steam. World freight markets have been relatively calm to slightly lower this week. The Baltic Panamax index is slightly lower, but there is a lot of talk in the market about the potential for new long haul grain business from the States to Asia. Everyone knows about the difficulties and political talk taking place regarding Black Sea feed wheat and the implications it may have for additional feed grain exports from the U.S. Freight owners are hoping that Black Sea Handymax vessel business to Asia gets replaced by Panamax shipments from the U.S. Gulf and PNW. The degree to which this may happen is yet to be seen, but Asian, and especially Korean, freight interests are optimistic about the possibilities. This is helping to keep freight offers unchanged from last week.

Then there is also the rhetoric about the limitations of the U.S. export system and its inability, capacity wise,  to make up for much of the short fall from the Black Sea region. I have to admit that export elevations are somewhat tight, especially in the PNW, but I’m not at all convinced that we can’t pump more out of all ports if the economic incentive is provided. Money usually talks on such matters.

By my best estimates we have the capacity to export the following on grain commodities on an annualized basis:

Center Gulf – 67-69 million tonnes

Texas Gulf – 14-15 million tonnes

Atlantic – 3-5 million

Lakes – 6 million

PNW -30-33 million

Interior rail – 13-15 million

I’m open to other opinions on these estimates, but all these individual port range quantities have been done in the past and should be possible again. I’m therefore quite sure that we have not reached our maximum capacity to export. And, if the market demands it, and pays the economic incentive, I’m sure we will see capacity ramp up at all port regions.

As for the U.S. Gulf of Mexico oil leak; the final cementing seal is being placed on the well and it is projected that this will bring the U.S. Gulf oil leak to a close. No oil is leaking, and the sea lanes are relatively clear of oil. Commercial vessel traffic continues to move into and out of the Mississippi River and Gulf region without disruption.

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:           $5.85-$6.20
Three weeks ago:         $6.50-$6.75

One week ago:              $7.00-$7.20
This week                       $6.75- $7.50 ( About unchanged from last Friday)

In dollar terms, the current spot and 30 day U.S. Gulf to Japan Panamax market is currently near $60.00/mt.  The 30-45 day Panamax rates from the PNW to Japan are approximately $33.00/mt.  The PNW/Gulf freight spread to Asia is approximately $27.00/tonne (.69/bushel for corn and .73/bushel for wheat and soybeans). ** The market is firmer by about $3.00/mt looking out to October.

INTEREST RATES