Market Perspectives
June 26, 2009
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Week in Review
With more down days than up, it was another bearish week for commodities. The week opened with corn export inspections in respectable territory, but many owners of corn contracts went further underwater when 14 cents came off the board. On Monday, July settled at $3.85/bushel. Tuesday brought something of a dead cat bounce, with a 3.75 cent/bushel gain, mostly attributable to the pull of a weaker dollar and other commodities.

Wednesday brought a return to the slump, with funds selling 4,000 contracts and July corn down 2.5 cents to $3.865/bushel. Thursday's market maintained the sullen mood and July corn fell another four cents to $3.825/bushel. December hovered near the $4.00/bushel threshold.

Trade in the corn pit was so light on Friday that apparently expiring options on the July contract had no impact. December corn toyed around at the sub-$4 level but ended the day up 2.6 cents at $4.042/bushel. The July contract closed out at $3.842/bushel, up 1.6 cents for the day.

Outlook
Apparently this is a market so down that even weather will not shake it out of its funk. It is giving proof to the adage "Sell in May and then go away." A significant macroeconomic development might have done something, but the Fed this week showed that it is happy to remain neutral unless forced to do otherwise. However, its interpretations are indicative and Chairman Ben Bernanke testified that he expects resource utilization to remain slack for quite a while. The dollar was on a rollercoaster, up then down then up then down-and could continue that way for quite a while. There is some suggestion that finance ministers are intentionally keeping the dollar strong, and thus commodities and oil in particular cheap, for fear of the consequences if mere fundamentals were allowed to determine such important matters.

2. CBOT FUTURES

CBOT July 2009 Corn Futures (CN9):

Current Market Values:

3. U.S. WEATHER/ CROP PROGRESS

U.S. Drought Monitor Weather Forecast
Through June 29, above normal precipitation is expected from the northern Midwest, through the northern Great Lakes, and throughout the mid-Atlantic and New England.  In intense drought areas, such as Texas, little relief is expected.  Temperatures are expected to be above normal extending from the Southeast to the mid-Atlantic and westward to the Plains.  The west coast is largely expected to see below normal temperatures during this period.

For June 30 - July 4, the odds favor cooler-than-normal conditions in the Northwest and the Northeast.  The interior of the country, from the Rocky Mountains to the mid-Atlantic and Southeast, is expected to see above normal temperatures.  Precipitation is expected to be above normal in the Southeast and in select locations in the Southwest and the upper Plains.  Below normal precipitation is expected from the southern Plains into the Great Lakes and along the West Coast.  Odds favor dry and warm conditions throughout most of Alaska.

Follow this link to view current U.S. and international weather patterns and the future outlook:
Weather and Crop Bulletin: http://www.usda.gov/oce/weather/pubs/Weekly/Wwcb/wwcb.pdf

4. U.S. EXPORT STATISTICS

Corn:  Net sales of 686,400 MT were down 11 percent from the previous week and 3 percent from the prior 4-week average.  Increases reported for Japan (373,200 MT, including 125,300 MT switched from unknown destinations and decreases of 110,000 MT), Malaysia (60,000 MT), Egypt (36,200 MT), Colombia (35,700 MT), unknown destinations (29,700 MT), Taiwan (29,400 MT), and Libya (28,000 MT), were partially offset by decreases for Guatemala (9,300 MT).  Optional origin sales of 6,000 MT for Colombia were cancelled.  Net sales of 250,300 MT for delivery in 2009/10 were mainly for unknown destinations (76,200 MT), Saudi Arabia (60,000 MT), Mexico (33,000 MT), Taiwan (30,500 MT), and South Korea (25,900 MT).  Exports of 1,038,400 MT were up 27 percent from the previous week and 34 percent from the prior 4-week average.  The primary destinations were Japan (496,900 MT), Mexico (131,800 MT), Taiwan (98,200 MT), South Korea (59,800 MT), Morocco (33,500 MT), Venezuela (32,400 MT), and Peru (27,900 MT).   

Barley:  There were no sales reported during the week.  Exports of 200 MT were for Mexico.

Sorghum:  Net sales of 2,000 MT were for Japan (5,800 MT, including 5,100 MT switched from unknown destinations) and Mexico (1,200 MT).  Decreases were reported for unknown destinations (5,100 MT).  Exports of 14,600 MT were to Japan (13,900 MT) and Mexico (700 MT).   



5. FOB

6. DISTILLERS DRIED GRAINS WITH SOLUBLES (DDGS)

In response to the downtrend in corn prices this week, DDGS dropped about $5.00, to $10.00 mt. The seasonal pressures of early crop silage and other forages are reducing DDGS demand overall in cattle feed sectors. It is possible that we will see a return to more normal seasonal values relative to corn by July. In contrast, there is higher than normal demand for DDGS from poultry sectors in response to the high soybean meal protein prices worldwide.

Domestic

Demand is steady in the dairy sector in California, though forward purchases have slowed from previous months. The Southwestern cattle feed lot regions from Oklahoma to Arizona are showing signs of declining DDGS demand. In addition, many of the dealers are reporting full warehouses, which decreases spot demand. Demand from the poultry sector seems robust. It was reported that Tyson came in late last week and bought 70,000 tons for July and August shipment.

Exports

• Demand from Mexico was steady this week, with reports of similar trading volume as last week.
• CIF NOLA barge demand has been weak from the standpoint of end-user demand.  There were a couple of tenders this week (including Guatemala), but not enough to absorb the excess product being loaded on the river.   
• Canadian demand was actually seen in the market this week, but the volume was small at about 2,000 mt. 
• Asia container demand was steady this week, with active loading out of Kansas City.

Other useful DDGS Links:
U.S. DDGS Supplier List: http://www.grains.org/buying-us-grains-a-ddgs/688
U.S. DDGS User Handbook: http://www.grains.org/ddgs-user-handbook
Iowa State CARD DDGS Book: http://www.matric.iastate.edu/DGbook/

7. COUNTRY NEWS

Argentina:  Sorghum remains a popular export commodity, particularly to Chile and Japan, with the latter buying 150,000 MT for shipment July onwards.  Separately, production of fuel ethanol begins in earnest late this year in preparation for the five percent blend mandate effective January 2010.  Most of the projected 45 million liters of ethanol will be made from sugarcane, but the FAS AgAtt notes that there is a small distillery in Buenos Aires province that could use sorghum and a Tucuman distillery that could eventually use corn.

Brazil:  Analysts say that corn area in Brazil may decline by 300,000 hectares in the coming year due to more attractive prices for soybeans, high input costs and limited credit. 

China:  As in years past, all eyes are on China and what it will do with its corn supply.  The government owns 40MMT of corn in surplus stock, or substantially more than the 17 MMT held in private hands.  Some exports are a possibility.

India:  The monsoon has stalled and could negatively impact the production of fall/early winter (kharif) harvested coarse grains. 

Russia:  Corn exports could reach 1.3 MMT this year, which is a big change considering that that country was previously a net importer (mostly from Ukraine).  Credit may limit future crops.

Ukraine:  Feed barley and corn prices have chased feed wheat upward, with prices rising $8/MT and $5/MT, respectively, this past week. Feed corn is now one of the most expensive grains in Ukraine ($187-192/MT at Black Sea ports).

United States:  USDA announced $1 billion in additional GSM-102 export credit guarantees allocated to the Caribbean, Central America, China/Hong Kong, Korea, Mexico, South America and Turkey.  Feed grains are eligible under the program. 

Vietnam:  Feed prices have changed five times in the past month and this is causing some aquaculture and livestock companies to close down.

8. OCEAN FREIGHT MARKETS AND SPREADS

J.E. Hyde Dry Bulk Freight Index: Week Ending June 26, 2009

9. OCEAN FREIGHT COMMENTS 

Transportation and Export Report: Jay O'Neil, O'Neil Commodity Consulting

It was another bumpy week in world freight markets; this week the bumpy road led downhill. Chinese iron ore business has slackened a bit and demand for coal is down. As a result, demand for Capesize vessel freight has softened this week, and with it the need to split capsize shipments into 2-3 Panamax vessels. As usual, business in the Pacific is off more than in the Atlantic.

Vessel owners and operators have been scurrying to lock in all the business they can at current rates. From an owner's perspective, the growing world fleet and soft world economy mean that the rate/income picture for late 2009 and 2010 is not positive.  

As a general freight market reference and indicator; below is a recent history of freight values for Capesize vessel shipments of iron-ore from Australia to China:
Five weeks ago           $11.15-$11.50/mt
Four weeks ago:         $13.25-$13.50
Three weeks ago:       $17.00-$19.00
Two weeks ago           $15.90-16.40
One week ago:           $20.00-$20.50
This week                    $18.40- $19.00 (down $1.50/mt)

Capesize freight costs for iron ore from Brazil to China is $42.00 (down $3.00/mt).

In dollar terms, the current spot and 30-45 day U.S. Gulf to Japan Panamax market is currently near $59.00/mt.  Handymax vessels are trading at a slight premium to Panamax size vessels. Panamax rates from the PNW to Japan are approximately $31.00/mt in the 30-45 day market. 

The market for both port ranges is trading at a $2.00/tone premium to the 60-90 day positions.

The PNW/Gulf freight spread to Asia has moved out to approximately $28.00/ton (.71/bushel for corn and .76/bushel for wheat and soybeans).

10. INTEREST RATES

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