Market Perspectives
November 13, 2009
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At midweek the market proved once again that testing the $4/bushel range for December 2009 corn is not going to work, and those with options paid a price.  The December contract came off a half cent to close at $3.94/bushel. 

Profit taking, farmer selling and an uptick in the dollar caused corn to lose -3.5 cents on Thursday ($3.905/bushel).  Word of mycotoxin concerns also bounced around the market.  Farmer selling might be greater, except they are busy in the fields harvesting and elevators are metering the intake of the higher moisture crop.

Corn nearly collapsed Friday afternoon but fought its way back to unchanged ($3.905/bushel) and ended the week +23.5 cents. 

Outlook
Right now there is a lot of cheap feed wheat competing against relatively solid corn prices.  Add to that mycotoxin concerns (some reports suggest 8-10 percent affected in the eastern Corn Belt) and that gives a boost to soybean meal.  However, it will ultimately prove bullish as the volume of quality corn available to the market tightens.  A Goldman Sachs report suggests that December 2010 corn will hit $4.50/bushel but that is hardly a risky prediction given that the contract is already trading at $4.30/bushel. Those looking longer term are trying to find a shortage due to ethanol, but exports have already shown the adjustment.  In the near-term, corn may be range bound but there is fresh money coming into the commodities market.  Until and unless there is new information about 2010/11 corn crop prospects somewhere in the world, there is little reason for any major price change.

2. CBOT FUTURES
CBOT December 2009 Corn Futures (CZ9):

Current Market Values:

3. U.S. WEATHER/ CROP PROGRESS
U.S. Drought Monitor Weather Forecast
Through November 15, an active weather pattern should impact much of the country.  As the remnants of Hurricane Ida continue up the coast of North Carolina and into the Mid-Atlantic, precipitation amounts should be quite large, with 6 or more inches not out of the question.  The next system coming onshore in the Pacific Northwest will have a trough moving through much of the country, bringing a good chance of precipitation for the Rocky Mountains and Plains states.  Temperatures during this time will be above normal for the eastern half of the United States in front of this trough, and cooler than normal behind it.  Temperatures should average well above normal in the northern Plains, where departures of 6-9 degrees Fahrenheit above normal are expected.  Behind the trough, temperatures are going to be 0-3 degrees Fahrenheit below normal.

From November 16-20, a ridge over much of the United States will bring temperatures well above normal for the northern Rocky Mountains, Plains and Great Lakes regions. Dry conditions look likely over the Plains and Rocky Mountains. 

Follow this link to view current U.S. and international weather patterns and the future outlook:  Weather and Crop Bulletin

4. U.S. EXPORT STATISTICS

Corn:  Net sales of 488,500 MT were down 13 percent from the previous week, but up 9 percent from the prior 4-week average.  Increases were reported for Japan (303,500 MT, including 151,500 MT switched from unknown destinations and decreases of 39,600 MT), Canada (82,700 MT), Guatemala (71,500 MT), Mexico (28,900 MT), the Dominican Republic (23,000 MT), Venezuela (18,500 MT), and Colombia (17,100 MT).  Decreases were reported for unknown destinations (80,900 MT).  Optional origin sales totaling 33,600 MT for Colombia were canceled.  Exports of 758,000 MT were up 7 percent from the previous week and 6 percent from the prior 4-week average.  The primary destinations were Japan (403,400 MT), Mexico (143,100 MT), South Korea (57,300 MT), the Dominican Republic (49,300 MT), Colombia (28,800 MT), Costa Rica (24,300 MT), and Canada (22,100 MT).   

Barley: There were no sales reported during the week.  Exports of 1,200 MT were to Canada (1,100 MT) and Taiwan (100 MT). 

Sorghum:  Net sales of 55,500 MT were for Japan (39,800 MT, including 8,800 MT switched from unknown destinations) and Mexico (18,400 MT).  Decreases were reported for unknown destinations (2,700 MT).  Exports of 61,600 MT were to Mexico (41,800 MT) and Japan (19,800 MT).

5. FOB

6. DISTILLER’S DRIED GRAINS WITH SOLUBLES (DDGS)
There is not much to comment about this week as the author is traveling overseas. The market price is about unchanged from last week. There is of course much discussion about mycotoxins (mainly reports of some vomitoxin) in the new crop corn, (not so far in the DDGS) but from what we hear the ethanol plants are well aware of it, and are testing for it in the incoming corn to keep it out of the plants. We do not have statistical reports on the actual size (quantity) of the problem but anecdotally it appears to blown out of proportion in the media with respect to DDGS. The good news is that there are widely accepted accurate tests for this mycotoxin for both corn and DDGS so if you are concerned about it then ask for a representative sample to be tested from your supplier or independent lab.

7. COUNTRY NEWS

Argentina:  Corn exports have been stymied by higher prices on the board in Chicago.  Paraguayan corn is being offered as a cheaper substitute but quality problems provoke caution over this origin.  Droughty conditions continue in Argentina, which will favor the later planting of soybeans, but there are three additional reasons that grain sorghum production could increase—the government does not control it like corn and soybeans, it is non-GMO with a market in Europe, and it is cheaper to grow.

Brazil:  The government is issuing leilaos (subsidies) to move both milling quality and feed wheat, the latter at $152/MT FOB Paranagua with a $45/MT subsidy.

Europe: Ninety percent of the grain going into intervention this week was barley, at 852,981 tons.  Germany and France provided the largest amounts and there is now a total of 1.7 MMT of barley in EU intervention stocks.

India: The Khariff crop production estimate for coarse grains is 19.69 percent lower, with corn off -9.28 percent and sorghum down -17.74 percent.  Meanwhile, the “National Poultry Plan 2020” would double the country’s production and processing capacity every ten years.

Russia: The ruble/dollar exchange rate is giving exports a fit as corn prices increased dramatically (+$8/MT) in the south; barley rose +$2.80/MT.  Intervention has been limited to milling wheat.

Ukraine:  The feed grains market remains well supported in the Black Sea. South Korea is in the market for Ukrainian feed wheat.  Ukrainian corn remains the cheapest origin, about -$17/MT below U.S. corn. Feed wheat prices rose to $151-155/MT FOB Black Sea and barley is up about a dollar per ton.

8. OCEAN FREIGHT MARKETS AND SPREADS


9. OCEAN FREIGHT COMMENTS 

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting
I guess we’d better talk extensively about all of the reasons why freight markets are strong and potentially going higher; this way maybe they will break.  All in all the market is singing the same old song; “Here Comes China.” In China the government stimulus package is obviously having a big impact on their economic recovery. China’s GNP is anticipated to grow by 8 percent in 2010. The Chinese seem to think that they need to grow their economy internally in order to get the best possible result during this time of world financial crisis. In the first nine months of 2009, Chinese iron ore imports were 470 million tonnes. This was a 30 percent increase over the previous year. China imported 64.55 million mt of iron ore in September alone. Chinese steel capacity is estimated at between 550-600 million mt and China is moving to update and consolidate outdated mills. This is also the season for increased coal movement and the North American grain harvest.

However, all of this demand would not be enough to lift prices to current levels if the market were not simultaneously experiencing logistical problems.  Sure enough, there is congestion and unload delays at numerous Chinese ports and up to 50 Panamax and 100 Capesize vessels waiting to load at Australian and Brazilian ports and unload in China. Add to this all the money that is currently flowing into raw commodities and you get an environment that supports higher prices. At the same time, market analysts are projecting that this is a seasonal phenomena and that these market levels are not expected to continue into the first quarter of 2010. I guess it’s a case of what goes up, must come down eventually?

The Baltic P2A and P3A Panamax indexes for the Atlantic and Pacific routes have both reached new highs for calendar year 2009. They are in fact at close to 14-month highs.

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:         $10.50-$11.00
Three weeks ago:       $12.25-$12.50
One week ago:           $13.90-$14.75
This week                    $17.50- $18.00 (Up $3.00-$3.50/mt from last week).

In dollar terms, the current spot and 30 day U.S. Gulf to Japan Panamax market is currently near $70.00/mt.  30 day Panamax rates from the PNW to Japan are approximately $43.00/mt. The PNW/Gulf freight spread to Asia is approximately $27.00/ton (.69/bushel for corn and .73/bushel for wheat and soybeans).

10. INTEREST RATES

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