Outlook: The outlook for corn has been so bearish for so long that it takes some adjustment to see it the other way. Now there are stories around the market that Japan might need to buy more than two MMTs of old crop corn. Indeed, one result of China’s recent corn purchases is that it pushes other regular buyers to end their complacency and move to cover their prospective needs sooner. There is still a likely huge corn crop in the U.S. this summer, but maybe the more important weather to watch is in China. USDA pegs China’s corn crop at 10 MMT larger than last year, but some believe that the estimate for last year’s crop was 10 MMT higher than it actually was. China buying three MMT imported corn does not change the S/D scenario nearly as much as China being 10 MMT short on production.
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 Midwest, into the Great Lakes, and across New England early in the13-17 May 2010 time period. Later in the period, the South and Southeast may see areas of precipitation. The West is expected to be dry. Above normal temperatures will dominate much of the Southeast and areas of the Northwest during this time, while below normal temperatures are expected through the Plains, the Midwest, and into the Northeast. Hawaii can expect a mostly dry period with the exception of some light windward showers.
For the ensuing five days (18-22 May 2010), the odds favor cooler-than-normal conditions n the Pacific Northwest and the Northeast. Warmer-than-normal conditions are expected from the Rockies, across the central and northern Plains, and into the Midwest and parts of the Southeast. The odds of above-normal precipitation extend from the Pacific Northwest, across the northern Plains, through the Missouri and Mississippi River valleys and into the Southeast, extending to the Gulf of Mexico. Odds favor below-normal precipitation in the upper Midwest and into the mid-Atlantic and Northeast. 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 819,100 MT for delivery in 2009/10 were down 56 percent from the previous week and 41 percent from the prior four-week average. Increases were reported for Japan (273,500 MT, including 144,100 MT switched from unknown destinations), South Korea (121,000 MT), Mexico (83,200 MT), Colombia (70,300 MT), Venezuela (66,000 MT), Syria (59,800 MT, including 55,000 MT switched from unknown destinations), and Egypt (48,000 MT). Decreases were reported for Guatemala (26,700 MT). Net sales of 120,900 MT for delivery in 2010/11 were mainly for unknown destinations (108,800 MT). Exports of 1,033,200 MT were up 21 percent from the previous week and 2 percent from the prior 4-week average. The primary destinations were Japan (336,900 MT), South Korea (173,000 MT), Mexico (150,700 MT), Taiwan (124,000 MT), Syria (59,800 MT), and Egypt (59,300 MT).
Barley: There were no sales reported during the week. Exports of 3,100 MT were to Canada (2,700 MT) and Mexico (400 MT).
Sorghum: Net sales of 43,800 MT were reported for Mexico (43,400 MT) and Japan (10,500 MT, including 10,000 MT switched from unknown destinations). Decreases were reported for unknown destinations (10,000 MT). Exports of 32,800 MT were to Mexico (22,400 MT) and Japan (10,400 MT).
FOB
DISTILLERS DRIED GRAINS WITH SOLUBLES (DDGS)
The DDGS market remained steady this week, which is stronger than normal for this time of year. Again, it appears we can attribute most of this week’s support on price to strong export demand and steady domestic demand. Looking forward into the summer, it is hard to predict higher prices relative to corn, mostly because of the slowing in the cattle sector for demand as grazing increases. China has most notably brought in U.S. Corn with estimates ranging from 300,000 mt confirmed to 600,000 mt unconfirmed in new export sales; this combined with the pending increases for ethanol demand this summer i.e. the increase to E-12 or E-15 (meaning if up to 12 or 15 percent of ethanol blended with gasoline is allowed or mandated). Should these increases in demand be realized this summer, we could certainly see higher prices for both corn and DDGS. However, on the bearish side of the market, the world is still exporting plenty of surplus feed wheat, and the economy is unstable due to massive debt and high unemployment rates in the first world countries. There has also been increasing discussion about a Chinese economic bubble that would certainly limit demand as well. In summary for the bearish case, if we see the global recession return and a loss of demand for all commodities, then prices would most likely decline again.
There have been some comments in news articles lately about DDGS competing for corn export demand. Considering that it takes 3 tons of corn to make 1 ton of DDGS, we hope that the thinking readers will understand is that it is therefore very difficult for DDGS ever to compete for corn in any demand sector. Similarly, it would be difficult for the quarter to be a competitor of demand for the dollar.
Exports:
- DDGS exports to Asia in container were strong this week as we continue to hear the container freight rates are coming back in line with bulk freight rates to Asia.
- Canada reportedly bought about 10,000 mt this week.
- Mexico has been buying; specifically the poultry sector was in the market this week.
- Bulk exports to Asia were steady, and there were reports of one bulk shipment of DDGS for China (we have not confirmed how many tons, but it was a new sale)
Domestic:
- On the supply side of the market, the ethanol margins have remained slightly positive; this is supportive for production into the summer months.
- The demand in general this week has been slow without much news to report. Many of the traders and suppliers were at the Distillers Grain Technology Conference, which explains the absence of trade information on the domestic front.
COUNTRY NEWS
Argentina: A large number of panamaxes are presently loading their May shipment corn cargoes, and the corn crop may be north of 22 MMT. The trade was anxious for a government announcement that came at the end of the week—3 MMT of new export licenses. The goal is to sell for July shipment ahead of Brazilian corn entering the market in August. Importers wanted a large license issuance in hopes of pressuring prices lower.
China: China has already purchased over one MMT of corn, and some believe it could take two-four MMT of corn. One company described Chinese ministers as wild-eyed paranoid over food security. Others suggest that China is not a democracy like Japan, and the Chinese governments can fall over food shortages and thus Beijing will not tolerate import dependence that could gives such leverage.
Brazil: Reportedly some corn was sold to Venezuela at $180/MT FOB Paranagua.
Canada: Stats Canada reported that barley supplies were below expectations.
EU: Effective May 1, the EU added tariff line 0710.40.00 (sweet corn) to the list of those imported products subject to an additional 15 percent import duty, increasing the level of Byrd Amendment retaliation from just over $16 million to nearly $96 million.
Ukraine: Feed barley ($141-142/MT FOB) and corn ($179-181/MT FOB) prices remained stable. Meanwhile, domestic use prices are expected to continue to fall. A draft law meeting the obligations to join the Grains Trade Convention and thus the IGC was presented.
OCEAN FREIGHT MARKET AND SPREADS
OCEAN FREIGHT COMMENTS
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: The trend was broken this week as rates did not move in the opposite direction of the previous week. We saw a continuation of the upward move in the Baltic index and in physical rates. The Pacific market was the most active and the leader. The biggest movement was in the capsize vessel market. I wish there was something new to say about the uptick in prices, but the story is just more of the same; China’s demand for iron ore and coal has been rising faster than the pace of new ship deliveries.
China holds most of the keys to market prices. The steel, coal and minerals markets are the market makers in this game. It appears that China’s demand for raw materials will increase by 9-10 percent this year, if the the bubble does not pop. The question then remains; will the world Dry-Bulk vessel fleet increase by at least as much, and if so, when ? Most professional estimates predict that the world vessel fleet will grow by 50-57 percent this year. If this occurs there will obviously be sufficient vessels to meet the rising demand from China. So it is really a waiting game to see how the pace of these two forces combines to tip the balance scales in one direction or the other. Thus far the demand from China has outpaced the availability of ships and has created a demand market.
We are still seeing new ship deliveries of 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 percent over the current world fleet when all vessel types are taken into consideration. The freight market is inverted by about $5.00/mt out to the new crop O-N-D period.
As for the U.S. Gulf of Mexico oil spill; it is still spewing oil and remains a big problem. Fortunately, it has not yet seriously disrupted vessel traffic into or out of the Mississippi River or Mobile, AL. All commercial vessel loading activities are continuing, and are expected to do so for the foreseeable future. Cleaning stations have been set up in the event that the cleaning of vessel hulls is needed; none have been preformed yet. The only financial impact on vessels in the area is that they are being routed around the oil slick zone and are incurring a little extra transit time and extra pilot fees. Vessel owners have been advised to file a claim directly with B.P. for any extra costs incurred
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 $14.50- 15.00(Up $3.50 - $4.00from 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 $43.00/mt. The PNW/Gulf freight spread to Asia is approximately $29.00/tonne (.74/bushel for corn and .79/bushel for wheat and soybeans).
INTEREST RATES
