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CHICAGO BOARD OF TRADE MARKET NEWS

Outlook: A drought in the Black Sea region, particularly in Russia, became the key market driver this past week.  Russia has been the rationale for the spikes in wheat prices.  And where wheat goes, feed grains must follow.  It will continue to be the focus of supply/demand equations unless something succeeds it, though this past week likely factored in much of the change.  Meanwhile, the CME raised margin requirements, which likely causes the exit of some smaller speculators that are typically long.  Of note for all is the July 13  Feed Outlook report from USDA’s ERS, which forecasts an increase in prices for corn, sorghum, barley and oats this month, with ending stocks projected lower.

CBOT SEPTEMBER CORN FUTURES

Current Market Values:

U.S. WEATHER/CROP PROGRESS        

During the next five days (July 28-August 1), a series of cold fronts across the northern tier of States should bring unwanted rain to the saturated western and central Corn Belt, but welcome rain to most of the Atlantic Seaboard. The southwest monsoon should remain active, with the bulk of the rains to move further west into most of Arizona, Utah, and western Colorado. The Far West should remain mostly dry, with meager precipitation expected in the southern half of the Plains, lower Mississippi River Valley, western sections of the Southeast, and New England. Above-normal temperatures should persist across the southeastern quarter of the U.S., while subnormal temperatures should occur from the upper Midwest into New England, in the Southwest where the monsoon should be active, and along the West Coast.

The CPC six to 10 day forecast (August 2-6) calls for subnormal precipitation in the Northwest, along the southern tier of States from Texas to Florida. Above-normal precipitation is expected from the southern Rockies northeastward into the northern Plains and from the Corn Belt east into the mid-Atlantic. Unseasonable warmth is predicted for the eastern half of the Nation except the Northeast (near-normal), while subnormal temperatures persist along the West Coast and in Alaska’s Aleutians.Follow this link to view current U.S. and international weather patterns and the future outlook:  Weather and Crop Bulletin.

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U.S. EXPORT STATISTICS

Corn: Net sales of 432,300 MT for delivery in 2009/10 were down 30 percent from the previous week and 29 percent from the prior four-week average.  Increases were reported for Japan (265,200 MT, including 112,300 MT switched from unknown destinations and decreases of 80,800 MT), Mexico (118,800 MT), South Korea (94,200 MT, including 46,000 MT switched from unknown destinations and decreases of 100 MT), Egypt (64,300 MT, including 60,000 MT switched from unknown destinations and decreases of 1,800 MT), Saudi Arabia (56,100 MT, switched from unknown destinations), Jordan (52,300 MT, including 51,000 MT switched from unknown destinations), and Taiwan (40,100 MT).  Decreases were reported for unknown destinations (301,800 MT) and Guatemala (29,600 MT).  Net sales of 528,100 MT for delivery in 2010/11 were mainly for unknown destinations (209,500 MT), Japan (138,700 MT), Mexico (88,000 MT), and South Korea (58,000 MT).  Exports of 1,199,200 MT were up 26 percent from the previous week and 21 percent from the prior four-week average.  The primary destinations were Japan (301,000 MT), South Korea (214,700 MT), Egypt (143,600 MT), China (115,000 MT), Mexico (114,600 MT), and Venezuela (56,500 MT).

Barley:  There were no sales reported during the week.    

Sorghum: Net sales reductions of 9,500 MT resulted as increases for Japan (5,900 MT, switched from unknown destinations) and Mexico (500 MT), were more than offset by decreases for Chile (10,000 MT) and unknown destinations (5,900 MT).  Net sales of 12,100 MT for delivery in 2010/11 were for unknown destinations.  Exports of 20,800 MT were to Mexico (14,900 MT) and Japan (5,900 MT). 

FOB

DISTILLERS DRIED GRAINS with SOLUBLES (DDGS)

 General Comments: DDGS prices are slightly higher this week following the trend in corn prices. Demand has been steady but not overwhelming. There has been some consternation about the DDGS report from last week relating to the quality specifications being discussed in the market. First of all, the discussion referred to about the proposed changes in quality specifications was a result of foreign buyers, U.S. buyers, and traders wanting a certain commercial standard on which to trade.  However, due to the problems with the corn quality this year, many ethanol plants cannot meet the proposed minimum requirements and are therefore rejecting these quality specifications on contracts to the traders. For example, one major ethanol producer informed us that they will only guaranty protein min 26 percent and fat 8 percent for a combined protein and fat of 34 percent minimum. We received similar reports from other ethanol/DDGS producers this week stating that these higher standards are not realistic for this year’s corn crop (until October 2010).

Domestic market: Values are steady with solid demand from the dairy sector. The ethanol plants are offering DDGS from August to September this week, which may suggest that supplies are still abundant.

Export market: Export markets are steady this week, not much to report new other than the ongoing concerns by buyers and sellers relating to quality and color of the DDGS. U.S. exports will likely reach over 7 mmt by the end of calendar year 2010. There has been a recent surge in demand for corn gluten feed that has supported prices domestically. This will in turn increase the value for DDGS in the domestic livestock rations.  There are growing concerns over the feed wheat supplies from the Black sea region (Ukraine & Russia). If they should stop or greatly curtail exports in 2010/11 then we will see an increase in global feed grain prices and export demand. This bodes well for DDGS exports to that region of the world (North Africa and the EU).

To the readers: Please understand that this report is merely reflective of topics being raised in the market place during the week, it is not a publication wherein U.S. official or commercial standards or prices are established. The sources that provide us with this information are considered to be reliable but there is no promise or guaranty of the accuracy of such reports

COUNTRY NEWS  

Argentina:  Iran is a critical market for Argentine corn, and it has been hit by a double whammy:  first Tehran imposed phyto-cert requirements due to a fungus, and European banks that have traditionally financed the sales are no longer offering assistance due to the trade sanctions imposed on Iran.

Brazil:  Although a panamax was traded at $184/183 per MT, Brazilian corn lost its competitiveness when the CBOT fell last week. 

China:  The investment bank Nomura issued a report saying its demand model shows China achieving self-sufficiency in food production.  Corn is currently 33 percent of all seed sold, 19 percent of grain area and 30.9 percent of grain production volume.  However, other agricultural economists declared it a superficial analysis and stated that China was beyond any capacity to achieve self-sufficiency.

India:  Dairy production is rising as consolidation and scale are employed, which should raise feed demand.

Russia:  An emergency was declared in 23 regions as record heat and drought struck major crop production areas.  The price of wheat was up $33-40/MT in one week, and barley prices rose $36-53/MT over the same period.

Ukraine:  Wheat pulled barley prices sharply higher with domestic feed wheat prices rising $13/MT and export prices up $24/MT to $180/183 per MT.  Barley shot even higher with domestic sales up $25/MT while export bids were $13/MT higher. 

OCEAN FREIGHT MARKETS AND SPREADS

OCEAN FREIGHT COMMENTS               

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting:  The market continued its recovery this week. There has been a moderate pick up in cargo demand, most of which has been in the Panamax and Handymax arenas. Capesize vessels have improved slightly but are not enjoying the degree of recovery that the other markets are. Chinese demand for iron ore, though improving, remains slack, but their demand for thermal coal has increased. It has been the thermal coal market that has added the most support to freight markets. The dry conditions in China have reduced the availability of hydroelectric power and increased the need for coal generated power.

Though we have seen some improvement in cargo demand, a good deal of the uptick in freight values stems from vessel owners reluctance to offer freight. Now that market values are improving, vessel owners are trying to hold out for even better prices. It was a very ugly price situation for owners in LH June and most of July, and they now would like to recoup as much value as possible. I hope they don’t get too greedy. The Baltic Panamax indexes have now clawed their way back to the levels of 30 days ago. But no vessel owner would call this exciting.

According to ICAP Shipping, the total dry bulk fleet expanded by some 340 ships amounting to 32 million dwt capacity in the first half of 2010, even after taking into account scrapings. Over the past 12 months, the world fleet has grown by an estimated 54 million dwt or+13 percent. This has obviously been the primary factor for the decline in earnings since May and will be a cause of concern for months to come. Daily hire rates for Capesize vessels has slumped from a typical $48,000 to just $16,000 today. There have been three to five year time charters concluded for Panamax vessels at $18,000-$20,000/day.

As for the U.S. Gulf of Mexico oil leak; the temporary cap on the leaking pipe is still holding, and B.P. is hoping to establish a more permanent fix within the next two to three weeks. No oil is leaking and the sea lanes are relatively clear of oil. Commercial vessel traffic continues to move into and out of the Mississippi River and Gulf region without disruption.

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:           $7.70-$8.20
Three weeks ago:         $5.85-$6.20
One week ago:              $6.50-$6.75
This week                       $7.00-7.20 (Up about $.50/MT from last Friday)

In dollar terms, the current spot and 30 day U.S. Gulf to Japan Panamax market is currently near $60.00/mt.  The 30-45 day Panamax rates from the PNW to Japan are approximately $33.50/mt.  The PNW/Gulf freight spread to Asia is approximately $26.50/tonne (.67/bushel for corn and .72/bushel for wheat and soybeans).

** The market is firmer by about $3.00/mt looking out to October .**

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