Outlook: Corn prices had been pretty much stuck at the same low level since April, but now they have fallen below technical support and the signal is lower prices ahead. Having three-quarters of a large crop rated good to excellent at the first of June means nothing, there is a lot of growing season ahead, but traders cannot stop themselves from being psychologically affected by it—especially when the weather forecast continues to be nearly perfect for growing corn. Meanwhile, the dollar continues to be pushed higher, especially against the euro, which could hit $1.12-$1.15, and this raises the external cost of U.S. grain. Markets have already calculated in the rollover of long investor contracts from July 2010 to July 2011.
CBOT JUNE CORN FUTURES
Current Market Values:
U.S. WEATHER/CROP PROGRESS
U.S. Drought Monitor Weather Forecast: Over the next five days (June 3-7) temperatures are expected to be well above normal for most of the United States. A ridge will build in from the southwest with the greatest anomalies over west Texas and New Mexico, where temperatures are projected to be 9-12 degrees above normal. Precipitation should be widespread over much of the eastern half of the United States with the greatest amount expected over Illinois and Ohio and along the Gulf Coast. The Pacific Northwest looks to be wet and cooler than most locations as several weather systems will impact the region. The CPC 6-10 day forecast (June 8–13) temperatures over the southern United States are likely to be well above normal with the best chances centered over Texas. Chances for below-normal temperatures are best over upper New England and the Pacific Northwest. The best chances for precipitation will be in the northern plains through the Midwest, while below-normal precipitation is expected over Texas and Alaska. 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 198,700 MT for delivery in 2009/10--a marketing-year low--were down 81 percent from the previous week and 84 percent from the prior four-week average. Increases reported for Japan (267,600 MT, including 143,300 MT switched from unknown destinations and decreases of 6,600 MT), South Korea (70,800 MT, including 55,000 MT switched from Japan and 9,000 MT switched from unknown destinations), Saudi Arabia (40,700 MT, including 36,900 MT switched from unknown destinations), Israel (36,000 MT), Mexico (34,500 MT), Venezuela (23,200 MT), and Tunisia (22,300 MT, switched from unknown destinations), were partially offset by decreases for unknown destinations (233,300 MT), Colombia (83,700 MT), and Cuba (25,000 MT). Net sales of 114,400 MT for delivery in 2010/11 were for South Korea (60,000 MT) and Japan (54,400 MT). Exports of 1,226,600 MT were down 1 percent from the previous week, but up 19 percent from the prior 4-week average. The primary destinations were Japan (448,000 MT), South Korea (172,300 MT), Taiwan (168,700 MT), Mexico (136,000 MT), Venezuela (63,700 MT), and Saudi Arabia (40,700 MT).
Barley: There were no sales reported during the week. Exports of 2,100 MT were to Canada (1,700 MT) and Mexico (300 MT).
Sorghum: Net sales of 10,800 MT were reported for unknown destinations (6,100 MT) and Mexico (4,700 MT). Exports of 48,600 MT were to Mexico (48,500 MT) and Canada (100 MT).
FOB
DISTILLERS DRIED GRAINS WITH SOLUBLES (DDGS)
The DDGS market is slightly lower this week. The market seems to be responding to a near-term surplus of protein (soybean meal mostly) overseas. Though the domestic U.S. market remains steady, the normal decline in the cattle sector that will not be sufficient to sustain prices; we will need to see a resurgence in export demand from China and other countries. The export numbers are typically behind by about three months, so we have nothing new to report on the actual statistics this week; however, the anecdotal reports suggest that the last two weeks of DDGS exports have been lower than the previous month’s. Feeding margins overseas (mainly Asia) are not great, and therefore demand overall seems to be slowing. The increased ethanol production from improved processing margins has added to the weakening in prices for DDGS. We have seen suppliers selling into September delivery of this year based on their positive margins looking ahead.
Exports:
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Some are stating that Asian container business has been slow, while others are showing one of the best weeks in sales that they have had in some time. The most supportive factors for containers this week has been the freight rates dropping to compete with bulk, while FOB Midwest DDGS prices are attractive relative to corn. Chicago origin containers seem to have the most volume trade noted this week. Bulk exports were very quiet this week. There are bids under the market, but it has not been reported that buyers are raising up to meet the offering prices.
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Mexico demand has been characterized as solid, so no large losses of export volume there this week; there may even be a slight increase.
Domestic:
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California Dairy and Beef sector demand was strong this week, with about 25,000 to 30,000 mt being reported as traded for the summer through September.
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Canada demand is slightly better. There are even reports of some new trade out of Lethbridge.
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Poultry was in for trucks again this week; however, no large volume purchases were made.
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Feedlots have been buying steadily for the summer. Some traders suggest that they will jump in more if Asia steps up.
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The market seems to be anticipating a large surge in supply out of the new largest ethanol plant in Cedar Rapids Iowa, (ADM). It is reported to be over 200 million gallons per year. Some say they can produce up to 300 million gallons per year in that one location.
COUNTRY NEWS
Argentina: The corn market is quiet with local traders taking notice of the reported excellent American crop and seeing flat prices drop. Meanwhile, farmers are refusing to sell at lower prices even with production now forecast at a near all-time high of 22.2 MMT. Total exports for May were 2.3 MMT. The peso has been one of the more consistently weak currencies and growing weaker, but it still does not spur any sales to China, which retains its politics-based ban on Argentine vegetable oil.
Brazil: The government accepted 700 KMT of corn for export subsidy, but it is still unlikely to be competitive in world markets. The subsidy is limited to 1 KMT per farmer and increases the farther the farmer is from port.
China: China sold 924,000 MT of reserve corn at its weekly, but at slightly lower prices. The government has now sold off nearly 9 MMT.
EU: EU farmers offered 112 KMT of barley to intervention this past week, bringing the total thus far to 5.9 MMT. Brussels cleared 52 KMT of barley and 55 KMT of corn for export.
Russia: The forecasted size of the new grain crop was cut by the government to 90 MMT, down from 97 MMT last year, and the government is ready to provide export subsidies with the trade asking for $320 million.
Ukraine: Barley continued its downward trek with export prices at $141-142/MT FOB Black Sea (Israel paid $148.5/MT) as the trade awaits the new crop. Corn prices are stable at $174-176/MT, and while a record large new crop is expected, one view is that export demand for high quality corn is preventing the price drop being experienced by other grains. Still, offers are lower.
OCEAN FREIGHT MARKET AND SPREADS
OCEAN FREIGHT COMMENTS
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: It was another down/correction week in world ocean freight markets. Actually most everything fees negative today.
Both freight and world commodity markets are very nervous over the European, and Eastern European financial crisis and the talk of possible sovereign debt defaults in Hungry. No one knows what the collateral damage will be if these defaults actually occur. Will there be a financial domino effect? Crude Oil is down, Grain commodities are down, and the Euro is lower; only gold is up. Then there are the projections of a slowdown in the Chinese economy. Obviously world markets are not feeling too confident or optimistic at the moment. And as we all know, an uncertain market is a bearish market.
A recent Hellenic Shipping News survey asked readers to vote for what they considered to be the leading factors in determining future Dry-Bulk freight rates for 2010-2012. It was not surprising that the large majority of voters chose China’s Iron Ore imports as the number price determinate. New vessel deliveries came in second and vessel scrapping rates came in third, followed by concerns over the world economy. This pretty much sounds like a “no duh” type of result, but it does emphasize the importance of what takes place in China.
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. has cut the leaking undersea oil pipe and attached a “Top Hat” containment device that is designed to divert leaking oil to a surface ship. The objective is to capture 90 percent of the oil leak. This is still a work in progress. The Top Hat connection is not yet tight enough to accomplish the objective. B.P. says it will take more time (two to three days) to better secure the Top Hot device. Thus far the spill has not 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: $14.50-$15.00
Three weeks ago: $13.50-$14.00
One week ago: $13.50-$14.00
This week $13.50-14.00 (Unchanged from last week, but feeling weaker this afternoon
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 $38.00/mt). The PNW/Gulf freight spread to Asia is approximately $32.00/tonne (.81/bushel for corn and .87/bushel for wheat and soybeans)
INTEREST RATES
