Outlook: It is difficult to put aside the bearish fundamentals that will persist despite some corn sales to China. Gasoline was predicted to head over $3.00/gallon with the impending summer driving season, but now oil has faltered, actually falling to $68/barrel at one point. Commodities are no safe haven from the jitteriness in outside financial markets. Corn exports are solid, but at the same time the new crop is planted and in very good condition.
CBOT JUNE CORN FUTURES
Current Market Values:
U.S. WEATHER/CROP PROGRESS
U.S. Drought Monitor Weather Forecast: Unsettled weather will continue across northern portions of the West, with locally heavy precipitation likely from the Pacific Northwest into the northern Rockies. In contrast, mostly dry, hot weather will prevail across the western and central Gulf Coast region, while showers dot the southeastern quarter of the nation. Dry, increasingly warm weather is anticipated across the drought areas of the Upper Midwest, although a few showers may accompany a cool front during the latter half of the weekend. Elsewhere, dry, generally cool weather is anticipated over the Southwest, while a late-spring Northeastern heat wave gives way to cooler, mostly dry conditions over the weekend.
The CPC 6-10 day forecast (1-5 June) calls for above-normal temperatures from southern California into the central and southern Rockies, while cooler-than-normal conditions prevail in the Pacific Northwest and across northeastern quarter of the nation. Near-to above-normal precipitation is expected across much of the lower 48, with the greatest likelihood for wetter-than-normal weather centered in the Northwest and Ohio River valley. 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 1,030,800 MT for delivery in 2009/10 were down 24 percent from the previous week and 22 percent from the prior 4-week average. Increases were reported for Japan (354,900 MT, including 98,100 MT switched from unknown destinations and decreases of 14,500 MT), China (241,000 MT, including 58,000 MT switched from unknown destinations), Mexico (75,300 MT), unknown destinations (73,800 MT), South Korea (67,800 MT, including 55,000 MT switched from Japan), Saudi Arabia (59,100 MT, switched from South Korea), and Venezuela (34,200 MT, including 6,500 MT switched from Panama). Decreases were reported for Guatemala (7,600 MT). Net sales reductions of 174,000 MT for delivery in 2010/11 resulted as increases for Mexico (11,100 MT), were more than offset by decreases for China (130,000 MT) and South Korea (55,000 MT). Exports of 1,239,800 MT were up 27 percent from the previous week and 31 percent from the prior 4-week average. The primary destinations were Japan (392,700 MT), South Korea (282,700 MT), Mexico (212,500 MT), Egypt (115,600 MT), and Saudi Arabia (59,100 MT).
Barley: There were no sales reported during the week. Exports of 300 MT were to Canada.
Sorghum: Net sales reductions of 8,200 MT resulted as increases for Morocco (2,500 MT) and Japan (700 MT), were more than offset by decreases for Mexico (11,300 MT). Exports of 162,600 MT were to Mexico (126,300 MT), Morocco (27,500 MT), and Japan (8,800 MT).
FOB
DISTILLERS DRIED GRAINS WITH SOLUBLES (DDGS)
The DDGS market was characterized as steady to weaker this week by many traders. In absence of any strong bulk export demand to China this week prices began to drift lower, ranging from 3-7/mt lower FOB ethanol plants and steady in some of the container markets. There have been some positive developments in some export markets, the Turkish Government is expected to soon officially approve 16 out of 17 GMO events for import to Turkey, we (the USGC), are looking into the one un-approved event to see if that one might soon be approved as well. Should this come to pass we would likely see resurgence in demand from that country because currently DDGS and Corn Gluten feed are very competitive in their feed rations on a landed price basis. During our market assessment mission work this week we also discovered that DDGS are competitively priced into Ireland, and only slightly above par values in Spain and Portugal. The potential for increased demand between Ireland, Turkey, Spain and Portugal is over 1.5 million metric tons, however it would take more than just a few weeks of competitive pricing to reach that goal on an annual basis. The Turkish feed millers feel confident that their Government is finally moving in the right direction on this GMO issue through their scientific committee that evaluates their GMO policies and approvals, however more work needs to be done.
Exports:
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Overall it is hard to discern whether the near term slack export demand is as a result of positions being traded or the result of dropping prices of all competing ingredients. The feed wheat and wheat/barley values around the world seem to be steady to increasing as the spring wheat harvest pressure subsides. We found that wheat and barley prices in the EU are not as cheap as they were a few months ago, and the devaluation of the Euro is also supportive of commodity values in general.
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Container markets were very slow this week someone reported at about 15 percent of normal volume of sales; the freight values are coming more in line with bulk which is supportive for container exports.
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Although DDGS into China are still competitive, the buyers were reluctant to step in and buy substantial volumes this week to support the market. There is talk that China has a surplus of soybean meal in the short term which is pressuring protein values there. They have also been reported to be selling soybean meal for export to the region in significant volumes.
Domestic:
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We have received reports of good demand into the dairy sector from Idaho, to California to New Mexico; prices for DDGS are still competitive into these rations. We are not saying that it is increasing in use it is just not falling off in demand as much as it might otherwise be this time of the year.
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Poultry sector is still a steady buyer of DDGS in the eastern U.S. markets.
COUNTRY NEWS
Argentina: The sorghum market is quiet, but there was a sale to Colombia at -45/bushel the July contract. Corn traded at 65 cents over the July contract for June shipment to Colombia. Argentine corn cannot go to China due to the lack of an SPS certificate.
China: China sold another 1 MMT of corn reserves, sending Dalian corn futures prices lower. Keeping food prices low is a major government objective and will guide the use of corn imports. The newly planted crop will be important to the global corn market
Brazil: The government auctioned 1 MMT of corn. A $10/MT subsidy would make corn competitive in world markets—though the slide in the euro could affect demand.
India: NGO’s complain that imported foods contain uninspected and unlabeled GMO’s while the government concurrently extends the moratorium on GM foods while encouraging domestic biotech research in order to exploit indigenous innovation.
South Korea: Purchased three cargoes of Black Sea feed wheat at around $205/MT CIF or $144-145/MT FOB.
Tunisia: Purchased 50 KMT of barley for July shipment at around $162/MT, or $130/MT FOB Black Sea.
Ukraine: Feed wheat ($156-159/MT FOB) and barley ($141-142) prices softened, though corn ($184-186) held steady. Internal barley prices will stay bearish, but corn prices are expected to rise based on feed mill demand and international influences.
OCEAN FREIGHT MARKET AND SPREADS
OCEAN FREIGHT COMMENTS
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: The Panamax freight market found it too difficult to rally four weeks in a row, though it had a good run. Panamax rates backed off this week and returned to the levels of early May. Going home on Friday things continue to feel soft and the projections for next week are currently for lower markets. The Capesize market has been the strong and stubborn one with good demand from China for thermal coal and iron ore. The new Chinese government policy to restrict imports of low-quality coal has severely damaged India’s export market and forced China to look further afield for supplies. The freight market remains inverted by about $5.00/mt out to the new crop O-N-D period.
As for the U.S. Gulf of Mexico oil leak; B.P. believes it has stopped the flow of oil from the well, at least temporarily. B.P. says it will be Sunday before they can come to any conclusions on the success of their recent efforts. Fortunately, the spill 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; only one tanker vessel has been reported to need cleaning and that process delayed the ship by only 30 minutes. Cleaning is done with high pressure hoses. 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 frees. 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: $10.80-$11.25
Three weeks ago: $14.50-$15.00
One week ago: $13.50-$14.00
This week $13.00-14.00 (Unchanged from last week ).
In dollar terms, the current spot and 30 day U.S. Gulf to Japan Panamax market is currently near $73.00/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 $30.00/tonne (.74/bushel for corn and .79/bushel for wheat and soybeans).
INTEREST RATES
