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CHICAGO BOARD OF TRADE MARKET NEWS

Outlook: USDA’s August forecast of 165 bushels/acre (BPA) average U.S. yields has fallen into doubt at the same time that wheat is losing favor.  The old adage is that big crops get bigger, but that is not always true, and with the share of the crop rated good/excellent falling to little better than last year (69 percent in 2010 versus 68 percent in 2009), the mindset begins to question whether it can beat last year’s 164.7 BPA.   The Pro Farmer crop tour does not think so—it predicted a 164.1 BPA.  Whether $4/bushel corn is too high or too low will be determined by how this debate ultimately turns out.  What is certain is that volatility around this question will increase as harvest approaches.

CBOT SEPTEMBER CORN FUTURES

Current Market Values:

U.S. WEATHER/CROP PROGRESS        

Over the next five days (August 19-23), precipitation should be impacting some of the drought areas, as maxima of precipitation are centered over the Gulf Coast and upper Midwest.   The Plains and Mid Atlantic have fairly good chances of precipitation as well.  The monsoon season looks to continue, with widespread precipitation over the southwest.  Temperatures are projected to be above normal for almost the entire United States, with the greatest departures over the High Plains and Ohio River Valley (six to nine degrees Fahrenheit above normal).  Cool temperatures will again take place over the west coast.

The CPC six to 10 day forecast (August 24-28) continues to show the best chances for above-normal temperatures over the Ohio River Valley and below-normal temperatures from Alaska down through the west coast.  Precipitation chances are greatest over the northern High Plains and along the Gulf Coast.  The best chance for below normal precipitation is from Arkansas up through West Virginia and into New England. 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 594,900 MT for delivery in 2009/10 were up 35 percent from the previous week and 22 percent from the prior four-week average.  Increases were reported for Japan (246,200 MT, including 97,300 MT switched from unknown destinations and decreases of 51,100 MT), China (58,600 MT, including 55,000 MT switched from Japan and decreases of 4,000 MT), Venezuela (46,800 MT), Egypt (44,500 MT), Taiwan (43,500 MT), South Korea (33,400 MT), and Tunisia (25,000 MT).  Decreases were reported for Panama (2,300 MT).  Net sales of 2,293,700 MT for delivery in 2010/11 were mainly for unknown destinations (713,900 MT), Mexico (480,100 MT), Japan (446,500 MT), and Egypt (240,000 MT).  Exports of 1,006,100 MT were unchanged from the previous week and up 1 percent from the prior four-week average.  The primary destinations were China (241,600 MT), South Korea (222,100 MT), Japan (171,400 MT), Mexico (104,100 MT), Venezuela (79,200 MT), and Taiwan (71,100 MT).

Barley:  Net sales of 18,000 MT were for unknown destinations (10,000 MT), Japan (7,700 MT), and the Philippines (300 MT).  There were no exports reported during the week.    

Sorghum: Net sales of 94,000 MT were reported for unknown destinations (67,500 MT) and Japan (27,400 MT).  Decreases were reported for Mexico (900 MT).  Net sales of 60,000 MT for delivery in 2010/11 were for Israel (54,000 MT) and unknown destinations (6,000 MT).  Exports of 50,800 MT were to Mexico (50,700 MT) and South Korea (100 MT). 

FOB

DISTILLERS DRIED GRAINS with SOLUBLES (DDGS)

General comments:

DDGS prices remain firm making a decisive turn higher relative to corn prices into the fall and winter period. Although the FOB Midwest plant prices have not moved up as much, the export destination market prices are much higher compared to corn due to the increased bulk and container freight rates. Currently FOB Midwest prices are up $8.00/st in the range of $100-105.00 per ton and rising which is still only 70-80% of corn depending on the location. However landed prices overseas are as high as 90% of corn prices in some countries. There is also increasing demand from the domestic market sectors in poultry, swine, and cattle for the September December shipment period. Most producers and end users are anticipating good corn quality this year and therefore no problems with Vomitoxin. Whereas we are still about 45 days away from full harvest commencement the indications from the fields are excellent growing conditions. There were 2 Hawkeye Ethanol plants sold to a division of Koch Industries in recent weeks. According to reliable sources there were several bidders for these plants that were for sale and it went to the highest bidder at values above what the market place had anticipated.  Profit margins for ethanol production on spot market values have turned positive again and this is supportive for DDGS production in the coming months.

Exports:

        Jan - June 2009                          Jan - June 2010                Percent Change

We received information in the market place that strong container exports to Asia are continuing. We believe that exports to countries wanting to replace Russian Feed Wheat purchases will also cause an increase DDGS exports to countries that had seen lower export numbers earlier in the 2009/10 crop year.

Bulk freight is much higher, one source indicated that for U.S. Gulf to Korea bulk DDGS freight is over $80.00 mt which is above the landed container prices for Korea this is causing a more dramatic shift to containers in recent weeks. We received reports that the same applies for China with containers cheaper than bulk so the container exports have seen substantial increases in demand this week. Barge freight has also been very strong for September and October which is raising the cost of DDGS for bulk exports above the Midwest prices.

There were reports of 2 bulk vessels of DDGS sold to Asia this week, one for China and the other possibly for Korea, (however Korea is not yet confirmed).

Domestic:

Buying from the California Dairy and feed lot traders was strong with contracts concluded  for shipment through next July 2011 (about 11 months ahead) at prices equivalent to 90% of corn prices. Tyson is expected to be in buying as well for next week with good demand. The domestic rail delivery system has been slower than normal this week causing a disparity in prices between the Midwest ethanol plants and the west coast or southern rail markets.

    DDGS Export                                                                        2009            Jan - Jun 2009  Jan. - Jun 2010  Percent Change

COUNTRY NEWS  

Argentina: There is a lost opportunity in the EU market as the Argentine government refused to guarantee to Brussels that two pesticides are not used (fenitrothion and Diclorvos),  but sorghum is a hot seller since the EU went to a zero import duty.

Brazil: The bull market has taken corn prices +$45/MT to $210/MT since June and exports are topping 1 MMT/week with the earlier help of government subsidies.  Brazil has a freight advantage over Argentina of $4-5/MT except to South America destinations. 

China: The Dalian corn futures contract set a record high as realization set in that supplies are tight and the government has no magic stockpile.  The government will auction another 400 KMT to cool prices until a record 165-166 MMT of corn hits the market at harvest.

India: The Empowered Group of Ministers boosted the ethanol procurement price by 25 percent to $2.18/gallon as domestic production falls far short of mandates and other demand.  Meanwhile, a good monsoon has boosted the Khariff coarse cereals planting by 11.2 percent.

Spain: The feed wheat market headed lower after large volumes of corn were purchased from Brazil.

Ukraine: Feed wheat has risen to $252-240/MT ; barley 237-240/MT and corn 240-243/MT FOB Black Sea ports.  Wheat exports are limited to 1.5 MMT and barley to 1.0 MMT but there is no export restriction on corn. 

OCEAN FREIGHT MARKETS AND SPREADS

OCEAN FREIGHT COMMENTS               

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting:  The rally that looked as if it was running out of steam two weeks ago has continued to exhibit strength. Yes, the explanation for this rise is the same as always: China. A pick up in North American grain business has also helped.

The Chinese economy is showing renewed energy and growth and as is China’s thrust for raw materials. Capesize and Panamax sectors have seen good demand and daily hire rates have been improving. All the while we are experiencing a weekly growth in the size of the world fleet, and one therefore has to question how much longer this rally can last. All previous outlooks for 2010 projected a year of considerable market volatility and that is certainly what we have gotten. Neither side of the vessel supply verses demand battle has been able to control the market for more than relatively short periods of time. Owners and chatterers should therefore be prepared for continued volatility and surprises in the market for the balance of 2010. The longer term picture certainly appears to favor the market bears, but nothing happens as quickly as you expect.

Trade talk in the States still questions just how much additional export business can be handled at U.S. ports during the Sept.-Oct.-Nov. shipping period. Exporters in the U.S. Gulf and PNW continue to state that they have already committed most all their vessel loading capacity for this time frame.  Buyers of Corn, Wheat and Soybeans will be vigorously competing for the export capacity that remains, and the business will go to the highest bidder. New Demand for these commodities that needs to be shipped prior to December will likely have to look at loading out of the Atlantic or Lakes ports. One trade source made the following estimates: Fobbing capacity booked: PNW 100% Oct., 97% Nov., 90% Dec; 
Center Gulf 95% Oct, 80 % Nov , 50 % Dec., Texas Gulf  90 % Sep., 60 % Oct , 20 % Nov. and 20 % Dec.

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:           $7.00-$7.20

Three weeks ago:         $6.75- $7.50

One week ago:              $8.50 - $9.00
This week                       $10.00 - $10.50( Up $1.50/mt from last Friday)

In dollar terms, the current spot and 30 day U.S. Gulf to Japan Panamax market is currently near $65.00/mt.  The 30-45 day Panamax rates from the PNW to Japan are approximately $36.00/mt.  The PNW/Gulf freight spread to Asia is approximately $29.00/tonne (.74/bushel for corn and .79/bushel for wheat and soybeans). ** The market is firmer by about $2.00/mt looking out to October-November.

INTEREST RATES