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CHICAGO BOARD OF TRADE MARKET NEWS

Outlook: U.S. feed barley is soaring, +$0.50/bushel in just two weeks.  The reasons are clear—the U.S. crop is down, Russia’s production is off  40 percent and world stocks are -15 percent.  If  not for the intrinsic uncertainties—production and demand—the corn market might be suffering worse from negative outside markets.  What is certain is export demand with sales that have been huge: year to date bookings of corn (+8 percent), sorghum (+28 percent) and barley (+62 percent) are running significantly ahead of actual exports.  The underlying situation is that buyers gambled short, and this will keep the floor up.  Note that Kazakhstan and Ukraine have yet to impose export embargoes.

CBOT SEPTEMBER CORN FUTURES

Current Market Values:

U.S. WEATHER/CROP PROGRESS        

During the next five days (August 26-30), dry weather will prevail nearly nationwide.  Exceptions will include occasional showers in the Gulf Coast region and a surge of monsoon moisture from the Four Corners States into the northern Plains and the upper Midwest.  Markedly cooler air will arrive in the West, while late-season warmth will develop across the Midwest and the Northeast.  The National Weather Service’s six to 10-day outlook for August 31-September 4 calls for near- to above-normal temperatures across the eastern two-thirds of the nation, while cooler-than-normal weather will prevail in the Northwest.  Meanwhile, below-normal rainfall from the southern Rockies into the Southeast will contrast with wetter-than-normal conditions in the western Gulf Coast region and across the nation’s northern tier from the Pacific Northwest to the upper Great Lakes States. 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 42,300 MT for delivery in 2009/10 resulted as increases for Syria (107,800 MT, switched from unknown destinations), Taiwan (71,800 MT, including 60,000 MT switched from South Korea and decreases of 500 MT), Egypt (70,400 MT, including 60,000 MT switched from unknown destinations), Israel (60,000 MT, switched from unknown destinations), Japan (59,200 MT, including 32,500 MT switched from unknown destinations and decreases of 9,900 MT), El Salvador (37,900 MT, including 36,500 MT switched from Guatemala), and China (15,400 MT), were more than offset by decreases for unknown destinations (272,500 MT), South Korea (61,000 MT), Guatemala (48,600 MT), Mexico (15,600 MT), and Trinidad (10,000 MT).  Net sales of 1,693,600 MT for delivery in 2010/11 were mainly for Japan (528,600 MT), Egypt (420,000 MT), Mexico (284,000 MT), and unknown destinations (281,300 MT).  Exports of 1,171,900 MT were up 17 percent from the previous week and 16 percent from the prior four-week average.  The primary destinations were Japan (330,100 MT), China (193,400 MT), Egypt (190,400 MT), Syria (107,800 MT), Mexico (104,000 MT), and Taiwan (54,900 MT).

Barley:  There were no sales or exports reported during the week.    

Sorghum: Net sales of 8,800 MT were reported for Japan (7,900 MT) and Mexico (900 MT).  Net sales of 19,100 MT for delivery in 2010/11 were for Mexico (10,000 MT) and unknown destinations (9,100 MT).  Exports of 46,600 MT were to Mexico (38,700 MT) and Japan (7,900 MT). 

FOB

DISTILLERS DRIED GRAINS with SOLUBLES (DDGS)

General comments:

DDGS prices and demand are higher this week again. There are a number of factors pushing up prices that seem to be all having the same impact on prices. Some estimate as much as 20 percent of the ethanol plants are shutting down for maintenance ahead of the new crop corn production. Plant maintenance is routine for this time of year; however it is coming at a time when demand for DDGS is increasing both in the domestic market and export markets. There is a General Rate Increase “GRI” for container freight coming in October, so many shippers are now exporting as much as possible in September. The impact has been an increase in demand for DDGS in September and perhaps a slowdown in October at the container loading sites.  Ethanol margins are positive at about +$.20/gallon profit for ethanol production during the near term shipment period prices of corn and ethanol. This is encouraging for ethanol and DDGS production looking ahead for the next three to six months. There is talk that the blend wall restriction may be lifted from 10 percent to 12 to 15 percent use in gasoline by EPA sometime starting September or November 2010. If this occurs, we should see more stable profit margins for ethanol production in the future.  Supplies for September shipment container are nearly sold out; this has been reported by more than one source.

Exports:

• Container prices offered to China are about $5.00-8.00 mt above the bidding prices from the buyers right now. There has been an export sale of 1,000 mt to Malaysia in containers at $243.00 per mt for September shipment. Also comments from exporters suggest that there are an abundance of inquiries from China and other destinations this week that are all indications of growing export demand interest.  High global soybean meal prices (see chart below) are one of the major factors for interest in DDGS as well as high corn and wheat prices.  There are few reasons for consumers not to look closely at buying DDGS at this moment. There was about 30,000 mt of container business to Asia from the Illinois container transfer points
• Bulk shipment business was good, some sources reported that business was done to Morocco and Turkey totaling about 40-45 TMT.
• Mexico was also reported as a strong buyer of about 50,000 mt this week on rail

Domestic:

• Prices FOB Plant Midwest range from $97-to $110.00/st depending on the location in spot delivery. However, for October forward delivery the plants are asking for +$10.00-$15.00 per short ton higher.
• Tyson came in and reportedly bought about 100,000 mt this week which is a bit higher than their usual 70-80 TMT purchase.
• California Dairy Feed demand was very strong this week; they were buying in good volume for one-year delivery periods. Some estimated about 250,000 mt was sold this week by rail to California.

COUNTRY NEWS  

Argentina: North African and Latin American buyers paid almost $1/bu. over Chicago December futures for Oct/Nov FOB shipment when port congestion is lighter.

Brazil: The market has since slowed but lots of movement with corn selling at $209-210/FOB to $212-214/FOB for Oct/Nov delivery.  However, sales have since backed off awaiting more certainty from Chicago. Port congestion has also become a problem. 

Paraguay: The corn export situation is in gear with the market pegged at +$0.95/bushel over Chicago upriver for sales to Chile.

India: The government is debating whether to allow wheat exports given current prices.

Russia: Over-heated wheat prices have softened, and wheat and barley have now diverged with barley outpacing—a dynamic that should continue.

Ukraine: Feed wheat prices have stabilized, but barley keeps rising at $240-243/MT FOB Black Sea.  However, the Middle East is now well-stocked for Ramadan.  Corn is stable at $235-238/MT FOB Black Sea. 

OCEAN FREIGHT MARKETS AND SPREADS

OCEAN FREIGHT COMMENTS               

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting:  As with everything, market rallies and dips can’t last forever. This week turned out to be the week that some of the steam ran out of the previous three to four week rally in ocean freight prices. Basically the market took back most all the gains of the previous week and left us right back where we were last Wednesday, 18 August. I can’t say that anything dramatic occurred; the market simply continues to move through the natural fluctuations in weekly and monthly demand verses the gradual growth in the world fleet. This week demand did not grow enough to offset the supply of ships. Last week I mentioned the Trade talk regarding U.S. export capacity. This obviously continues to be a serious issue for the Sept.-Oct.-Nov.-Dec. shipment period. Exporters I’ve spoken with this week estimate that export capacity at the PNW is fully booked for Sept. through December 2010 and that January-February slots are going quickly. Export capacity in the Mississippi River is also largely committed for this same period. Corn and Soybean sales are being moved to other port ranges such as the Texas Gulf and Mobile, AL and even the Great Lakes. In order to meet the export demand of the next six months, exporters will have to utilize the capacity of all ports. To some extent, this will also provide extra opportunities for containerized grain shipments.

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:           $6.75- $7.50

Three weeks ago:         $8.50 - $9.00

One week ago:              $10.00 - $10.50

This week                       $10.25 - $10.60( Close to unchanged from last Friday)

In dollar terms, the current spot and 30-day U.S. Gulf to Japan Panamax market is currently near $64.00/mt. The 30-45 day Panamax rates from the PNW to Japan are approximately $35.00/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