Market Perspectives February 8, 2018

1. Chicago Board of Trade Market News

Week in review

Outlook: USDA surprised the markets today with significant revisions to its 2017/18 corn U.S. corn balance sheet. Most notably, the agency reduced its ending stocks forecast by 125 million bushels to 2.352 billion. Corn exports were increased by 125 million bushels, which drove the ending stocks reduction, as the agency sees U.S. corn’s competitiveness (currently the cheapest FOB prices in the world) as encouraging U.S. exports. USDA increased the season-average corn price 5 cents to $3.30/bushel. The futures market initially interpreted the report as bullish, but the slugging corn export pace observed so far this year limited market gains. 

The world corn outlook featured slightly bullish changes to the global balance sheet as well. World corn production in 2017/18 was lowered 2.8 MMT on drought and persistent heat in Argentina and reductions in Ukraine’s official production estimates. World corn production is currently pegged at 1041.7 MMT with world ending stocks at 203.1 MMT. 

The USDA left its January forecasts for sorghum, barley, and oats supply and demand factors unchanged in this month’s report. Similarly, USDA did not change its estimate of feed wheat volumes, keeping the 2017/18 estimate of wheat for feed and residual use at 100 million bushels. 

From a technical perspective, March corn is trending higher with three consecutive days of higher highs and higher closes. The 10- and 100-day moving averages offer technical support points and are confirming the momentum higher. The 200-day moving average ($3.75) stands as the next upside target, as well as a key resistance point. While there is growing bullish sentiment, it will take confirmation of global production shortfalls or a takeoff in U.S. exports before March corn will challenge the 200-day moving average. 

2. CBOT Corn Futures

CBOT March Corn Futures

CBOT Corn Futures

Current Market Values:

Futures price performance

3. U.S. Weather/Crop Progress

U.S. Drought Monitor Weather Forecast: A wintry mix will depart the East Coast at the beginning of the period, with this system having already provided much-needed rain and snow to many drought areas of the southern and eastern U.S. On this storm’s heels, a frontal boundary initially draped over the northern Plains and Corn Belt will be the focus for another round of rain and snow. As the front pushes south, a wave of low pressure will develop and move northeastward across the Atlantic Coast States during the weekend. As a result, moderate to heavy precipitation (1-2 inches, locally more) will provide additional drought relief from the Delta into the Mid-Atlantic and Northeast, with lighter showers expected over the Southeast. Despite the active weather pattern, dry weather will linger from the southern Plains into the Southwest. The NWS 6- to 10-day outlook for February 13-17 calls for warmer- and wetter-than-normal weather across the eastern third of the nation. Likewise, near- to above-normal temperatures are anticipated from the Plains to the Pacific Coast — save for chilly weather on the northern Plains — but unfavorable dryness will persist from the western Corn Belt and central Plains to the Pacific Coast States. 

Follow this link to view current U.S. and international weather patterns and future outlook: Weather and Crop Bulletin.

4. U.S. Export Statistics

US export sales and exports
US export inspections
USDA grain inspections for export

Corn: Net sales of 1,769,600 MT for 2017/2018 were down 4 percent from the previous week, but up 27 percent from the prior 4-week average. Increases were reported for unknown destinations (426,600 MT), South Korea (330,200 MT, including 65,000 MT switched from unknown destinations and decreases of 100 MT), Egypt (225,000 MT), Spain (198,000 MT, including 66,000 MT switched from unknown destinations), Japan (152,900 MT, including 127,700 MT switched from unknown destinations and decreases of 58,600 MT), and Colombia (114,500 MT, including 29,300 MT switched from unknown destinations). Reductions were reported for the Dominican Republic (22,200 MT) and Guatemala (4,300 MT). Exports of 961,200 MT were down 8 percent from the previous week, but up 22 percent from the prior 4-week average. The destinations were primarily to Japan (417,000 MT), Mexico (155,300 MT), South Korea (140,000 MT), Peru (78,300 MT), and Colombia (59,800 MT).4 

Optional Origin Sales: For 2017/2018, the current optional origin outstanding balance of 724,500 MT is for South Korea (342,000 MT), unknown destinations (261,500 MT), and Vietnam (121,000 MT). 

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

Sorghum: Net sales of 73,600 MT for 2017/2018 resulted as increases for China (179,700 MT, including 66,000 MT switched from unknown destinations), Mexico (25,700 MT), and Japan (3,200 MT, including 3,000 MT switched from unknown destinations), were partially offset by reductions for unknown destinations (135,000 MT). Exports of 125,600 MT were down 49 percent from the previous week and 15 percent from the prior 4-week average. The destinations were China (122,000 MT), Japan (3,200 MT), and Mexico (400 MT). 

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: FOB NOLA DDGS are slightly lower this week at $203/MT, following CIF NOLA prices which dropped to $191/MT. Merchandisers are reporting that, since CIF NOLA values dropped last week, prices have softened for product destined for Asia. However, the lower prices have increased buying activity and exporters are reporting large volumes sold/exported. 

FOB ethanol plant DDGS are $1/MT higher this week and are valued at 46 percent of KC soybean meal and 125 percent of cash corn. The per-protein unit cost of DDGS is $0.83 less that than of soybean meal, with the spread narrowing since last week. However, soybean meal futures’ recent rally should work to make the ethanol co-product more competitive in feed rations. 

7. Country News

Argentina: A protest by grain transporters demanding higher freight rates could slow exports of corn and other commodities. The Rosario Grains Exchange reports that 56 percent fewer trucks arrived at the major export facility at Rosario port on February 5. (Reuters) 

Egypt: Recent U.S. sales of 285 KMT of corn to Egypt reflects the increased competition for this 8.8 MMT market. The U.S. and Ukraine are the only sources considered to have normal prices and American corn is cheaper. Ukrainian government data shows that corn exports to Egypt during the last half of 2017 were down 73 percent. (AgriCensus) 

European Union: Corn imports (387 KMT) during the week ending January 31 were above the volumes seen over the rest of the year as Spain, the Netherlands and Portugal took advantage of low global prices. Now at 9.76 KMT, total corn imports for the 2017/18 marketing year are up 52 percent. Brazil is the largest supplier at 4.83 MMT, up five-fold from last year. Imports from Ukraine are up 34.8 percent. (AgriCensus) 

Ukraine: In light of low prices, some of Ukraine’s largest corn producers are reluctant to expand production and may switch to more profitable sunflowers, and perhaps rapeseed and soybeans. Shippers are facing fierce competition from Brazil. Just one of the firms contacted intends to expand production; that firm said area could expand 15 percent with the target market being China. (Bloomberg) 

South Korea: The feed association KOCOPIA passed on a feed corn tender as it faced higher prices. Corn prices have rallied five percent on increased U.S. corn exports, which are priced about five percent less than Ukrainian origin corn. (AgriCensus) 

Turkey: The government has already given a temporary reprieve on import duties on barley to slow inflation and it may similarly cut import duties on corn. The tariff rate is designed to keep corn prices at a minimum of $250/MT, but the domestic price is already reaching $219/MT. The inflation rate is over 10 percent and Turkish farmers have greatly reduced the corn planting area. (AgriCensus)

8. Ocean Freight Markets and Spread

Bulk freight indices for HSS

9. Ocean Freight Comments

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: We are certainly in the doldrums of a Lunar New Year Holiday period and the freight markets are feeling it. Vessel chartering activity is slow and quiet. As anticipated, first quarter 2018 cargo demand is down from the last half of 2017 and rates are slipping. Freight markets will likely go sideways until charterers return from the holiday. Then, the big question will be as follows: will sufficient demand build to support the surplus in vessel capacity? I believe we still have to expect that rates will be higher in the last half of the year, but it may be a slow and bumpy climb.

Baltic-Panamax dry-bulk indices
Below is a recent history of freight values for Capesize vessels of iron ore from Western Australia to China:
Capesize vessel pricing
US-Asia market spreads

The charts below represent 2017 annual totals versus 2016 annual totals for container shipments to Malaysia.

Container shipments 1
Container Shipments 2
Freight chart 1
Freight chart 2
Freight chart 3

10. Interest Rates

Interest rates