Outlook: As usual, China is providing great uncertainty to the market.  How much smaller was its 2009 crop than the number used by USDA?  How much of the gap will be filled by DDG versus corn?  Is it the start of a beautiful relationship, or a temporary gap because corn is still important to the Chinese farm labor sector?  China’s purchase of 115,000 MT of corn changes little in either the U.S. or Chinese S&D.  However, it is hugely important psychologically in moving the trade out of a bearish mindset.  If China takes more than one MMT to get through the summer months, it will make a major difference in the pricing scenario.  There will be competition—South America has a good crop and there is plenty of feed wheat.  At this juncture, Argentina is testing how high it can take the premium above U.S. corn.  Still, export sales from the U.S. have been impressive and USDA may be increasing its overall forecast for U.S. agricultural exports.

CBOT MAY CORN FUTURES

Current Market Values:

U.S. WEATHER/CROP PROGRESS

A series of low pressure and cold frontal systems will track across the U.S. during the next 2 weeks.  For the first 5 days (April 29-May 3), half an inch or more of precipitation are expected across the Sierra Nevada to Pacific Coastal ranges, central and northern Rockies, and Upper Mississippi Valley.  A large area of one inch or more of rain is forecasted from eastern Texas to Lake Erie, bringing much-needed relief to those eastern drought areas.  Locally heavy rain (4 inches or more) may occur along the Mid-Mississippi to Tennessee valleys.  Below-normal temperatures are expected underneath an upper trough over the western U.S. with warmer-than-normal temperatures in the southerly flow over the eastern half of the country.

For the 6 to 10-day outlooks (May 4-8), a continuation of wet weather is predicted for the region from eastern Texas to the Great Lakes, then eastward to the Mid-Atlantic Coast.  Above-normal precipitation is also expected for Montana east of the divide and for the Mid-Pacific Coast.  Below-normal temperatures are expected along the northern States with above-normal temperatures across the southern tier States. 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 1,228,700 MT for delivery in 2009/10 were down 17 percent from the previous week, but up 5 percent from the prior 4-week average.  Increases were reported for Japan (376,200 MT, including 29,800 MT switched from unknown destinations and decreases of 4,500 MT), South Korea (301,500 MT, including 218,000 MT switched from unknown destinations), Mexico (168,000 MT), Egypt (160,000 MT), Taiwan (129,000 MT), and Peru (104,900 MT).  Decreases were reported for unknown destinations (137,800 MT), Guatemala (10,000 MT), and the French West Indies (7,800 MT).  Net sales of 202,000 MT for delivery in 2010/11 were mainly for South Korea (55,000 MT), Egypt (55,000 MT), and unknown destinations (52,000 MT).  Exports of 913,800 MT were down 21 percent from the previous week and 16 percent from the prior 4-week average.  The primary destinations were South Korea (277,800 MT), Japan (254,900 MT), Mexico (166,300 MT), Venezuela (72,100 MT), Cuba (25,900 MT), and Taiwan (25,300 MT). 

Barley: There were no sales reported during the week.  Exports of 200 MT were to Taiwan. 

Sorghum: Net sales of 136,100 MT were reported for Mexico (118,100 MT) and unknown destinations (19,300 MT).  Decreases were reported for Japan (1,300 MT).  Exports of 107,700 MT were to Mexico (97,800 MT) and Japan (9,900 MT).

FOB

DISTILLERS DRIED GRAINS WITH SOLUBLES (DDGS)

DDGS prices remain firm this week again into the June delivery period. The main cause of the price support for DDGS is Chinese buying, (See table below). Cheryl Anderson, DTN, wrote an excellent report on DDGS exports to China last week as part of an interview with Allan Assmann, manager of distillers grain sales for Valero Energy (see full story below). Just imagine what the market would be like this summer for DDGS without that additional export demand? The corn market jumped higher yesterday on reports from the U.S. Grains Council sources of new export corn sales into China.

President Obama visited a POET ethanol plant in Missouri this week. Please see the President’s comments at the following links:

http://www.whitehouse.gov/the-press-office/remarks-president-barack-obama-poet-biorefining-macon-missouri

http://poet.com/discovery/releases/showRelease.asp?id=211

Exports:

• The Asian container demand is starting to pick up both from the Midwest and the West coast. In addition to DDGS exports to China there has been substantial demand for canola meal from Canada into China. This is one of the main competing feed ingredients for DDGS. The demand therefore is the rising tide lifting all boats including canola meal prices.
• Demand from Mexico resumed to normal levels this week through June delivery period. Mexico is actively seeking 30-40,000 mt of DDGS as of Friday, no confirmed sales but this has been supportive for the market going home on Friday.

Domestic:

•  DDGS FOB ethanol plants in the Midwest are ranging from $115.00 to $125.00 per ST, with most plants sold out for April shipment, and now starting in earnest to sell their production for the rest of June.
• Ethanol margins are reported to be in positive territory by as much as +$.15-.20/gallon. The margins are well below par largely because of the E-10 Blend wall which is a legislative restriction on the use of ethanol in gasoline to 10 percent maximum. If that law is amended to allow up to E-15, then we will see a rebound in ethanol profit margins and a resurgence of production. (See chart below)
• The DDGS Futures contract started trading very slowly this week. We heard that it was about 11 contracts total as a trial for some of the parties interested in the contract delivery mechanisms

Upsurge in Chinese Exports Boosts DDG Prices: Cheryl Anderson, DTN Staff Reporter 

OMAHA (DTN) -- Chinese livestock producers have been discovering that distillers dried grains are a good value and have been increasing their purchases of U.S. product by leaps and bounds.

That, in turn, has caused DDG prices to begin rising for the first time in months, according to Allan Assmann, manager of distillers grain sales for Valero Energy.

According to the spot prices collected by DTN, distillers grain prices have fallen every week in 2010, from an average of $114 per ton during the first week of January to $99 per ton the first week of April.

In fact, the second week of April saw the first increase in prices, an average of $103 per ton, since mid-November. Last week prices rose to $107 per ton, and increased again this week to $109.

In the past two or three weeks, there has been a dramatic increase in tonnage containers to China. That increase in exports has drive prices up $20 to $30 a ton, he said.

China has increased it imports of DDG from 1,250 metric tons during the first to months of 2009, to just over 213,000 metric tons during the same two months in 2010, according to USDA's Foreign Agricultural Service

"It's been an exciting three weeks," he said. "Chinese buyers have been in the market since last fall, but now they are realizing it is a value, that they can buy the high protein product cheaper than corn."

Domestic corn prices in China have increased, as livestock producers and those in the Chinese feed industry are finding it cheaper to import U.S. DDG.

"China buyers have been in the market since fall, but they are now realizing it is a good value product they can buy cheaper than corn," he said. "They are finally educated on how to feed distillers."

Assmann attributed a large part of the surge in Chinese sales to the work of the U.S. Grains Council in educating foreign buyers to the value in DDG, but also said that private companies have been making great efforts as well.

"The Grains Council has done a great job of promoting distillers everywhere in the world," he said. "But (Chinese buyers) have also been coming to the U.S. and touring plants. I can't count the number of tours we've given."

Domestic demand has followed suit with export demand and has driven buyers to get out and cover their needs, Assmann said. While many buyers waited to purchase on the belief that prices would continue to drop, the surge in prices forced many to jump in and buy what they need.

Assmann added that before the recent increase in prices, DDG was actually undervalued. That value, however, has improved.

"We went from 65 percent of the value of corn, to as high as 95 percent now," he said. "We're back now to where we actually should be."

Supplies of DDG are holding okay for now, however, whether that continues remains to be seen.

"I think all the recent interest cleaned up any excess in the market," he said, "and a lot of the supply from now through June is spoken for. I don't see supply weighing on the market right now. I think it's cleaned up."

As for the coming weeks, Assmann said he thinks the demand seen in April and May will continue into June, but said that whether end users will buy further out or continue to buy only 30 to 60 days out is unknown.

"I think most suppliers are sold out of May and have a good book on for June," he said. "I think a lot of guys are sold up for the next couple months."

A lot of factors in the market, however, could influence the market going forward for July and August, he said.

"If China continues to buy in July, August and into fall, prices could remain high," he said. "However, if prices remain too high and domestic users kick DDG out of their rations, we could see a huge correction in prices."

Prices of DDG could also be affected by the corn and soybean markets, planting progress and many other factors.

Assmann said he would advise any livestock producers needing to buy DDG, that with the discounts out for July through September, they might want to go ahead and buy what they need to cover that time period.

Copyright 2010 DTN/The Progressive Farmer, A Telvent Brand. All rights reserved.

www.dtnpf.com

COUNTRY NEWS

Argentina:  Basis is very strong with Argentine corn running a +15 cents/bushel premium over U.S. origin.  Logistics have pushed all sales forward to July and August and the restriction of export licenses to a select group has resulted in some very profitable business for the fortunate trading houses.   Sorghum is also selling well with prices rising to -$0.50/cN FOB.  There are still 570 KMT of sorghum licensed for export. 

Brazil:  The government is rumored to be announcing corn export subsidies with shipments beginning in June but from August forward.  The trade is cautious until the amount of subsidy is announced.

Canada:  Corn plantings are projected to be up one percent this year while barley is off four percent.  However, there is a view that the Stats Canada survey has the barley number too high.

EU: Farmers offered 117 KMT of barley into intervention bringing the total to date to 4.99 MMT.  Meanwhile, Bulgaria/Romania is offering feed wheat to Spain at €120/MT FOB.

India:   A scientific committee will soon review the material criticizing biotech crops as hazardous to the environment and human health.

Ukraine: Barley export prices stopped dropping and rebounded to $140-141/MT FOB Black Sea due to greater export demand.  Feed wheat was offered to Korea at $150/MT but did not sell since the market supported $147/MT.  While corn export prices strengthen slightly to $179-181/MT, it was less than the domestic value decline as the hryvnya strengthened more against the dollar.  There is a large inverse between old and new crops.

Russia:  There is good Mediterranean demand and exports of barley reignited, though prices were suppressed due to the ruble/dollar exchange rate.  Spring grain planting is a little behind but fertilizer is down and a better than 100 MMT crop year is expected.

OCEAN FREIGHT MARKET AND SPREADS

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OCEAN FREIGHT COMMENTS  

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting:  The bumpy ride continues. It seems we move up and down every alternating week and do not really cover much new ground. After all the market gyrations of the past 45 days, we are still in a fairly narrow trading range and are about back to the same price levels of early March in the Gulf/Atlantic. The Pacific market is slightly lower than it was in March but not too far off. Since March1 the Gulf to Asia panamamax market has been trading in a narrow range of $67-$72/mt. The PNW/Pacific panamamax market to Asia has been bracketed at $ 38.00-$43.00/mt. It would be hard to call either of these markets exciting. But maybe I’m just too influenced by the market volatility of last year? This week it was a surge in demand for capsize vessels and renewed strength in demand for grain vessels that lead the rally. Chinese demand for coal and grain helped fuel the fire.

In the area of new ship deliveries we are still averaging 15-20 ships per month into the market. The current order book calls for the delivery of about 264 million dead weight tonnes of additional bulk carrier vessels (over the size of 10,000 mt) in 2010. This represents an increase of about 57 % over the current world fleet when all vessel types are taken into consideration. 11-12 % of the world container vessel fleet remains idled and anchored off the coast of Singapore, as well as other locations. The market is all abuzz about the new corn sales (about 10-12 vessels) to China but has not yet asked what the shipment periods are; please note the below vessel fixture.

 

 

 

  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:           $10.00-$10.50

Three weeks ago:         $9.60- $9.90

One week ago:              $9.60- $9.90

This week                    $10.80- $11.25 (Up $1.10 - $1.55 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. 

The 30 day Panamax rates from the PNW to Japan are approximately $40.00/mt.  The PNW/Gulf freight spread to Asia is approximately $30.00/tonne (.76/bushel for corn and .81/bushel for wheat and soybeans).

 

  

 

 

  

INTEREST RATES

 

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