Outlook: Ethanol demand was the biggest news this week, but China still has key influence. Since the latest auction sold 60 percent of what was offered, the trade is going to have to see real evidence of fresh sales soon. There is plenty of corn, but if there is one crop with a potential to break out of the market’s current bearish scenario, it is maize. This is because the fundamentals are slightly tighter and the number of global suppliers that much fewer. USDA’s June WASDE boosted the forecasted use for ethanol and cut ending stocks, but it also boosted world consumption by 4 MMT. The bottom line is that world corn production is barely keeping up with demand, and any kind of production problem in China or the U.S. will prompt a sharp move in the market.
CBOT JUNE CORN FUTURES
Current Market Values:
U.S. WEATHER/CROP PROGRESS
U.S. Drought Monitor Weather Forecast: Over the next five days (June 10-14) we can expect to see above-normal temperatures across the southern Plains, Gulf Coast and mid-Atlantic, with the warmest air lodged over the Southeast. Substantially cooler air (9 to 12 degrees below normal) will fill in across much of the West (except for the northern coastal California) and northern Plains. Parts of New England and up into Maine can also expect slightly cooler than normal temperatures during this time. As for precipitation, many of the dry/drought affected regions may be in line for some decent rains over the next five days. This includes the Pacific Northwest, which has already seen a very wet start to the summer months (> 200-300% of normal precipitation across much of the region) with rapid snow melt and rains contributing to flooding in many places. A good portion of Wyoming, eastern Colorado, the central Plains, southern Plains (eastern Oklahoma and eastern Texas) are showing good potential for some significant precipitation. The forecast is also favorable for the Great Lakes region, including much of Minnesota, Wisconsin and northern Michigan including the Upper Peninsula. Finally, the Ohio Valley and Northeast may also share in the wealth.
The CPC six to ten day forecast (June 15–19) is showing increased odds for above-normal temperatures in the Four Corners region and throughout the central and southern Plains. Everywhere else can expect near-normal temperatures. Confidence is a bit low on the precipitation side of things, where chances are better for below-normal rainfall across southern and northern Alaska, the Intermountain West, most of Texas and northern New England into Maine. Better odds of above-normal precipitation are depicted across the northern Plains, Minnesota and northern Wisconsin along with the Southeast. 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 1,018,800 MT for delivery in 2009/10 were up noticeably from the previous week and 20 percent from the prior four-week average. Increases reported for Japan (310,200 MT, including 127,300 MT switched from unknown destinations and decreases of 4,700 MT), South Korea (267,600 MT), Egypt (135,200 MT), Mexico (72,800 MT), Taiwan (65,100 MT), Morocco (52,100 MT, including 25,000 MT switched from unknown destinations), and Syria (50,800 MT, including 44,800 MT switched from unknown destinations), were partially offset by decreases for unknown destinations (90,900 MT) and Guatemala (20,300 MT). Net sales of 143,500 MT for delivery in 2010/11 were mainly for unknown destinations (85,400 MT) and South Korea (58,000 MT). Exports for own account were reported for Mexico (2,000 MT). Optional origin sales of 61,600 MT were reported for Taiwan. Decreases were reported for the Dominican Republic (10,000 MT). Exports of 911,900 MT were down 26 percent from the previous week and 19 percent from the prior four-week average. The primary destinations were Japan (275,200 MT), Mexico (173,000 MT), South Korea (112,800 MT), Peru (78,300 MT), China (60,000 MT), and Syria (50,800 MT).
Barley: Net sales for the 2010/11 marketing year, which began June 1, totaled 2,400 MT were for Canada. A total of 17,000 MT in sales were carried over from the 2009/10 marketing year, which ended May 31. There were no exports reported for the period May 28-31, brought accumulated exports to 77,600 MT, down 64 percent from the prior year’s total of 215,000 MT. Exports of 400 MT were for Mexico during the period of June 1-3.
Sorghum: Net sales of 43,300 MT were reported for Mexico (62,800 MT) and unknown destinations (1,600 MT). Decreases were reported for Japan (21,000 MT). Net sales of 17,300 MT for delivery in 2010/11 were for Mexico. Exports of 21,900 MT were to Mexico (14,900 MT) and Japan (7,000 MT).
FOB
DISTILLERS DRIED GRAINS WITH SOLUBLES (DDGS)
DDGS prices are down $2-4 mt this week in response to slow demand for both domestic and export markets. We continue to see growth in production, with very slim margins across the Midwest for ethanol producers. The price difference between ethanol and gasoline remains just at about -$.50/ per gallon less for ethanol than gasoline on the futures markets. Negotiations in the U.S. Congress continue to determine whether or not 12 or 15 percent ethanol will be allowed or mandated into U.S. gasoline blends. It is still expected that this issue will be resolved by July of this year.
Domestic:
The domestic market is quiet but steady. Cattle feed demand is slowly eroding into the summer as it normally does due to increased grazing availability. Poultry and swine feed demand is steady but not growing fast enough to take up the slack demand in the cattle sector.
Exports:
The export markets were very quiet this week, especially in Asia. There are reports of bids well below the offers but not much trade. Prices for Shanghai China are bid at around $230.00 mt for July shipment without much commitment on volume.
COUNTRY NEWS
Argentina: Basis is rising again after falling the past few weeks. Basically, the flat price is not following the CBOT downward, and this is reducing margins for exporters. Still, 11.5 MMT of the 13 MMT in export licenses awarded by the government have been filled. Since actual exports can exceed licenses by 5 percent, exports should total 13.7 MMT for the campaign and leave a higher carryout that last year.
Brazil: Export activity has picked up pace with Panamaxes sold to Malaysia and Japan at approximately $170/MT FOB. Quotes on a C+F basis to Malaysia were $223-224/MT. The subsidy program (leilao) this week approved 620,000 tons for export, which is being used to make corn competitive versus Argentina.
China: Corn prices have softened but they are still well above U.S. values.
EU: FEFAC forecast compound feed output to decline by one percent in 2010 versus 2009 to 146.12 MMT. Feed output has declined by 3.8 percent since 2008. Thus the industry is demanding action on biotech tolerance approvals to obtain more competitive feed and livestock production.
Indonesia: Corn imported into Indonesia is costing $255/container or $240/MT ex Gulf.
Japan: At least 300,000 animals, mostly hogs, will be slaughtered as a result of foot and mouth disease. This will likely reduce overall feed demand this year.
Paraguay: Local corn is still more expensive than Argentine origin and of lower quality, but some sales are nonetheless expected.
Ukraine: Feed wheat is being offered at $142/MT but Korea paid $200/MT C+F which implies less than $140/FOB. Barley export prices are flat and old crop movement stagnant as the new crop is being harvested and exporters still complain about the stalled VAT refunds. Corn is also stagnant at approximately $175/MT with exporters saying it is too high considering quality. Sales of feed wheat and barley could start to erode the price.
Uruguay: Local corn is still not competitive in the export market. Some is being used domestically but external sales will have to await a rise in the global market.
OCEAN FREIGHT MARKET AND SPREADS
OCEAN FREIGHT COMMENTS
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: World Dry-Bulk freight markets continue to slide as vessel supply is outweighing demand and no serious logistical snags really exist. Things are going lower for all the same reasons, in reverse, that they went up. Chinas increased demand for Iron Ore and Coal have not kept pace with growing ship supplies. Market players also have growing doubts concerning the real potential for world economic recovery and growth given the recent news stories about Europe. As such, things are feeling bearish and the Dry-Bulk freight markets inverted by about $5.00/MT out to October.
As for the U.S. Gulf of Mexico oil leak; it’s much of the same story. The oil leak has been slowed considerably but continues to spew oil. B.P. is actively working on the problem but suggests that it may be weeks or months before the leak is fully controlled. 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 re-routed 20 miles 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: $13.50-$14.00
Three weeks ago: $13.50-$14.00
One week ago: $13.50-$14.00
This week $12.50-13.00 (Down $1.00/MT from last Friday)
In dollar terms, the current spot and 30 day U.S. Gulf to Japan Panamax market is currently near $38.50/mt. The 30 day Panamax rates from the PNW to Japan are approximately $37.00/mt. The PNW/Gulf freight spread to Asia is approximately $31.50/tonne (.80/bushel for corn and .86/bushel for wheat and soybeans)
INTEREST RATES
