1. Chicago Board of Trade Market News
Outlook: Grain market analysts continue to point at macro or external factors such as currency valuations and the oil market for what is happening to their studied products, but the bottom line is the market continues to largely trade sideways. The fall in the value of the dollar is providing a floor but it is still unclear whether March corn can break above what has been steady resistance at $3.75/bushel.
There are many conflicting pressures ranging from a possibly improved weather outlook in Brazil and Argentina, to the machinations in the currency markets. Fund managers tanked corn in January but have been selling their short positions of late, acknowledging the fact that the Fed cannot raise interest rates. Without doubt the downward pressure on the dollar will prompt some competitive devaluations to occur elsewhere.
Corn is having to compete with lots of low-cost wheat, which is likely to cause the U.S. corn export pace to slow. The trade will be watching what USDA does with this number in this coming Tuesday’s February WASDE report.
Corn prices are low, which leaves an upside potential as the only alternative. Private forecasters are accommodating with some citing a wet spring and then hot and dry summer denting the crop as the El Nino to La Nina weather pattern takes its toll. Bill Kirk of Weather Trends 360 told a Chicago audience this past week to expect $6-$7 corn this summer. BMI Research was less provocative with a forecast of corn at $4.10/bushel in 2016 based on lower output in North and South America.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: During February 4-8, 1-3 inches of precipitation is expected to fall across New England, New York, and the mid-Atlantic region, while 2-5 inches is forecast across parts of the Southeast. This should reduce, if not eliminate, some of the D0 coverage in this part of the country. For the northwestern quarter of the contiguous U.S., the mountainous areas can expect precipitation amounts (liquid equivalent) to range from about 0.5-1.5 inches, with perhaps as much as 4-6 inch amounts confined to the Olympic Peninsula and northern Cascades in Washington state.
During the ensuing 5 days (February 9-13), there are elevated odds of above-median precipitation from the Dakotas eastward across the Great Lakes to the northern Atlantic Coast. Below-median precipitation is favored for most of the remainder of the contiguous U.S.
Follow this link to view current U.S. and international weather patterns and the future outlook: Weather and Crop Bulletin.
4. U.S. Export Statistics
Corn: Net sales of 1,129,100 MT for 2015/2016 were up 38 percent from the previous week and 56 percent from the prior 4-week average. Increases were reported for Mexico (301,400 MT), Colombia (248,300 MT, including 77,500 MT switched from unknown destinations and decreases of 200 MT), Japan (209,300 MT, including 39,600 MT switched from unknown destinations and decreases of 200 MT), South Korea (66,100 MT, including 63,000 MT switched from unknown destinations and decreases of 200 MT), Egypt (64,700 MT, including 60,000 MT switched from unknown destinations), and Peru (63,500 MT). Net sales of 14,400 MT for 2016/2017 for Japan (10,200 MT) and Mexico (5,000 MT), were partially offset by reductions for Nicaragua (800 MT). Exports of 660,700 MT were up 2 percent from the previous week and 19 percent from the prior 4-week average. The primary destinations were Mexico (195,600 MT), Colombia (155,700 MT), South Korea (67,300 MT), Japan (64,700 MT), Egypt (64,700 MT), Peru (38,500 MT), and Guatemala (26,700 MT).
Optional Origin Sales: For 2015/2016, the current outstanding balance totals 398,000 MT, all unknown destinations.
Barley: There were no sales or exports reported during the week.
Sorghum: Net sales of 187,000 MT for 2015/2016 were reported for China (112,300 MT), unknown destinations (61,300 MT), and Mexico (13,500 MT). Exports of 165,600 MT were up 65 percent from the previous week and 13 percent from prior 4-week average. The destinations were China (162,200 MT) and Mexico (3,300 MT).
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: The average of prices for DDGS delivery in February at 16 delivery points fell an average of less than 1 percent last week. The price change for March/April delivery was -2.8 percent. There was a 1 percent increase for DDGS designated FOB Gulf. Larger declines for container deliveries in February/March/April were experienced in Laredo, Texas and Ho Chi Minh City, Vietnam. Prices were stronger overall for product delivered for rail shipment at Elwood, Illinois. This is a relatively firm market, especially in the nearby given the usual supply/demand dynamics experienced during this time of year.
Merchandisers reported small sales to Taiwan during the past week. U.S. DDGS exports to China for 2015 through the end of November (6.1 MMT) were up nearly 42 percent from the full 12-month total in 2014 (4.3 MMT).
Ethanol Comments: Ethanol production was down last week by an average 2 thousand barrels per day. However, that was not enough to offset the winter drop in demand for gasoline, especially during the record East Coast blizzard. As a result, surplus stocks were pushed higher by 4.3 percent to 22.4 million barrels for the week ending January 29, 2016. That is the highest level of stocks since March of 2012. However, some in the trade says that prices around the Gulf are up, likely due to export demand. Meanwhile, the Energy Information Agency reported that ethanol exports were down in November 2015, a 12 percent decline on the monthly average for the first 11 months of the year.
Meanwhile, the margin between the corn price and the value of ethanol and coproducts jumped last week in all four tracked markets (see below).
- Illinois differential is $1.35 per bushel, in comparison to $1.10 the prior week and $1.81 a year ago.
- Iowa differential is $1.21 per bushel, in comparison to $0.98 the prior week and $1.56 a year ago.
- Nebraska differential is $1.41 per bushel, in comparison to $1.17 the prior week and $1.43 a year ago.
- South Dakota differential is $1.55 per bushel, in comparison to $1.19 the prior week and $1.68 a year ago.
7. Country News
Argentina: The newly liberalized export policy is bringing to reality the predicted rush in corn exports. January saw more than 1.5 MMT in corn exports and nearly 2 MMT are slated for February. The pace is expected to continue until dwindling in June and drying up by August. (WPI) A private forecaster has pegged the new corn crop at 26 MMT, a 30 percent increase over last year. (Dow Jones)
Brazil: CONAB raised its forecast for 2015/16 Brazilian corn production by 1 MMT to 83.3 MMT versus a USDA prediction of 81.5 MMT. (Dow Jones)
Canada: Stats Canada reports that barley stocks as of December 31 were at 5.666 MMT, which is slightly above the trade’s estimate of 5.4 MMT. (Dow Jones)
China: Domestic corn prices are holding steady with some demand improvement evolving around food marketers preparing for the upcoming Spring Festival. However, there is still no policy to deal with the outsized supply of corn. (WPI)
EU: Export licenses were issued this past week for 212 KMT of barley and 376 KMT of maize. (Thompson Reuters)
Jordan: The government will tender for 100 KMT of feed barley, optional origin. (Thompson Reuters)
Zimbabwe: This landlocked and drought stricken country has made arrangements with the Mozambique railway lines to ensure passage of up to 120,000 MT a month of maize. (WPI)
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: We are quickly approaching the Lunar New Year, February 8-13, 2016, and global freight markets are expected to get even quieter during the holiday. I do not see anyone rushing to cover urgent needs so things will probably remain rather flat. It does, however, seem like we have finally found bottom. The Capesize market between Western Australia has resisted going lower than the $2.85 mark and the Baltic Panamax Index showed a very slight uptick this week. Capesize vessels are still getting $2,800- $3,000/day and say they need close to $6,000/day to break even. Panamax Dry-Bulk vessels are trading in the $2,300-$2,500/day range. Of course, charter party demurrage rates are running much higher than this.
With a grim market outlook for the next 9-12 months it will be interesting to see how long it takes some vessel owners, or their financial backers, to through in the towel.
Due to high water and too much silting, the Associated Bar Pilots of the Port of New Orleans (Mississippi River port of NOLA) have been forced to reduce their maximum draft recommendation at the South West Pass to 41 feet from 47 feet. This does not so much affect U.S. Gulf shipments to Asia that transit the Panama Canal because the current draft restriction there is 39.6 feet. But, it will have an impact on grain cargoes going out through the Atlantic or going to Asia via the Cape. As a general rule on Panamax vessels you can calculate about 2,000 MT less cargo per vessel for every foot of draft reduction.
The charts below represent year-to-date 2016 versus January-December 2015 annual totals for container shipments to Japan.