Outlook: A record 68 percent of the corn crop was planted as of 3 May, and that number will be much larger in the 10 May report. The even more aggressive planting in Illinois and Indiana is a hedge against the rainy weather forecast. This ought to be bearish, and one can add some private weather forecasts that call for a La Nina, which makes the first half of summer wet and the second half warm and dry, perfect for corn (though rotten for soybeans). Corn hit a marketing year low of $3.43/bushel just one month ago and the long-term trend of the past two years is a negative slope. An estimated 30 percent of farmers have forward sold their crop, going for profit whenever the price has been above their $3.60-3.70 cost of production. The market was briefly infatuated with China. Some 240,000 MT of reported sales to unknown destinations is rumored to be headed to the Middle Kingdom. It should be noted, however, that there are some who believe the earlier 115,000 MT sale will never actually happen because Beijing will refuse to grant the import licenses. What is clear is that the impact of the current big volume of old crop corn sales is having a strong impact on the cash corn market as it drives basis higher.
CBOT MAY CORN FUTURES
Current Market Values:
U.S. WEATHER/CROP PROGRESS
U.S. Drought Monitor Weather Forecast: Precipitation is expected to move across the northern and central Plains and into the Great Lakes and Northeast regions in the May 6-10, 2010 time period. Additional areas of precipitation are expected around the Gulf of Mexico. Western precipitation is expected to fall mainly in coastal Washington and into the northern Rockies in Idaho and. Above normal temperatures are expected throughout the South while below normal temperatures are expected across the Northwest, the Plains, and into the East.
For the ensuing 5 days (May 11 – 15, 2010), the odds favor cooler-than-normal conditions across most of the West, through the northern Plains and into the mid-Atlantic and Northeast. Warmer-than-normal conditions are expected in the extreme South and around the Gulf of Mexico. The odds of above-normal precipitation extend from the interior of the country, roughly from the Great Salt Lake, all the way through the Northeast. Odds favor below-normal precipitation along the Gulf of Mexico and through the northern Plains and western Great Lakes. 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 1,850,800 MT--a marketing-year high--for delivery in 2009/10 were up 51 percent from the previous week and 46 percent from the prior 4-week average. Increases were reported for Japan (672,400 MT), unknown destinations (240,100 MT), South Korea (168,900 MT), Mexico (131,600 MT), Egypt (117,500 MT), China (115,000 MT), Taiwan (110,400 MT, including 57,900 MT switched from unknown destinations), and Colombia (106,500 MT). Decreases were reported for Jamaica (6,500 MT), El Salvador (3,300 MT), and the Dominican Republic (3,000 MT). Net sales of 30,400 MT for delivery in 2010/11 were for unknown destinations (25,400 MT) and Japan (5,000 MT). Exports of 855,400 MT were down 6 percent from the previous week and 16 percent from the prior 4-week average. The primary destinations were Mexico (276,000 MT), South Korea (171,300 MT), Taiwan (127,300 MT), Japan (70,200 MT), Syria (43,700 MT), and Egypt (37,700 MT).
Barley: There were no sales reported during the week. Exports of 900 MT were to Canada.
Sorghum: Net sales of 35,700 MT were reported for Mexico (32,700 MT) and Japan (7,300 MT, including 4,300 MT switched from unknown destinations. Decreases were reported for unknown destinations (4,300 MT). Exports of 50,700 MT were mainly to Mexico (46,300 MT) and Japan (4,300 MT).
FOB
DISTILLERS DRIED GRAINS WITH SOLUBLES (DDGS)
This week the DDGS market began to correct from the price surge of the last 3-4 weeks. Suppliers are getting caught up on deliveries, and demand leading into June is not as robust as it was for April and May. As a result of the high prices relative to corn and the drop in the corn price, DDGS demand is slowing. We have begun to see DDGS prices become non-competitive in parts of Canada for the cattle feed sector, where barley is now cheaper to put in the feed rations. The normal seasonal lack of demand in the cattle sector in the U.S. is also impacting the market. Finally, the sudden turn in the stock market, the petroleum market, and the commodity markets in general this week have had a negative impact on prices. Ethanol margins held steady this week, which is a positive sign for future DDGS production and availability for export:
Exports:
- Mexico was a pretty big buyer of DDGS over the last week. We have received estimates of up to 25 thousand tons of business going down there.
- The demand for barges to the Gulf was notably quiet this week. There is some talk that due to the oil spill the port may have some delays or closure periods for cleanup work.
- Asian container business has been pretty strong as well, some estimate about 30,000 mt. There has been talk that the container lines are starting to offer freight rates competitive with the bulk freight to Asia, and that has helped recover some business
Domestic:
- California Dairy demand for DDGS has been really strong the last part of this week.
- Export business by container was strong this week. One broker reported he estimates about 30 thousand tons of sales this week. . Some sources estimate that California is loading almost as many containers of DDGS per week as are being loaded in Channahon/Elwood outside of Chicago.
- Poultry was quiet in terms of DDGS buying this week. They were in a couple weeks ago, so it will probably be two weeks before they show up with any volume purchases again
- Another issue that came up this week, particularly with regard to container loading, was vomitoxin (VOM). A couple overseas buyers were willing to buy DDGS that had VOM levels up to 20 ppm. That was not really available at any significant discount to clean 5 ppm product. This indicates to some that high VOM product has found the places it needs to go. Plants are either controlling the corn they have coming in, and thus keeping the VOM in their feed under the allowed 5 ppm, or they are channeling higher VOM corn and DDGS into separate distribution channels for it. This is interesting because two months ago, you could have bought max 20 VOM DDGS at a minimum of a $20/ton discount
COUNTRY NEWS
Argentina: The government may decide next week to allocate additional export licenses for corn since there are ample supplies for the domestic market and the export market is showing good demand.
China: Via its weekly tender, the government sold another 1.22 MMT of corn to feed millers out of reserve stocks.
EU: More than 3.15 MMT of barley are in intervention stocks and farmers have offered an additional 1.8 MMT (4.95 total).
India: Under normal conditions, corn prices would be rising this time of year but instead they are falling close to the support level of $188/MT due to lower exports to Southeast Asia, increased supplies and reduced starch demand.
Paraguay: There will be 800KMT to 1 MMT of corn for export this year, though it will compete head to head with Brazil’s exports.
Philippines: Ministry of Agriculture officials now say that the second corn crop may make up for the smaller first crop and get the country close to its original target of 8.5 MMT of production.
Russia: Feed wheat prices climbed and barley prices dramatically increased in the European part of Russia due to exporter activity but corn prices fell slightly in Southern regions.
Ukraine: Feed wheat prices fell this past week, barley was flat, and corn prices fell $2/MT ($179-181/MT FOB Black Sea ports) as domestic producers offered up supplies and merchants felt that prices were too high to generate demand.
OCEAN FREIGHT MARKET AND SPREADS
OCEAN FREIGHT COMMENTS
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: And so the battle continues. This was an up week for world freight markets, so I guess that means that next week will be lower? Markets were buoyed by increased coal and Iron Ore demand in the Pacific. Grain cargo demand from South America has also been good. Volatility remains with us and surly will for some time to come.
The U.S. Gulf oil spill has not yet affected vessels transiting the Mississippi River or Mobile Bay, but P&I clubs are already advising vessel owners to be cautious and suggesting that, if things get worse, the port of New Orleans might be categorized as something other than a “safe port”. There is also talk of charging charterers extra fees if unusual delays are incurred due to the oil spill. This obviously has the potential for making grain cargoes from the U.S. Central Gulf more costly. Two vessel hull cleaning stations have been established in the lower River but have not had to be used yet. As of today there are no restrictions for vessels entering or exiting the Mississippi River and hopefully things will not change for the worse.
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: $9.60- $9.90
Three weeks ago: $9.60- $9.90
One week ago: $10.80-11.25
This week $11.75- 12.00(Up $1.00 from last week).
In dollar terms, the current spot and 30 day U.S. Gulf to Japan Panamax market is currently near $72.00/mt.
The 30 day Panamax rates from the PNW to Japan are approximately $42.00/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
