Market Perspectives March 10, 2016

1. Chicago Board of Trade Market News

Week in Review

Outlook: The only demand story that can be found for corn is that last week’s Commitment of Traders report showed much larger short positions (247,000 contracts) in corn futures and options than expected, prompting some short covering. Today’s drop in the dollar is not a demand story. Until today there was only some covering because there just isn’t enough interpreted risk for those with huge short positions. Today showed a new source of risk, dollar volatility, but the market is without any fresh fundamental input. It certainly received little fundamental input from USDA’s March 9, 2016 WASDE where the agency apparently decided that it also needed more information before it starts making any major changes to its numbers.

USDA lowered 2015/16 beginning world corn stocks about 1 MMT and reduced production fractionally while upping world corn use a similar amount. Ending 2015/16 world corn stocks were 1.8 MMT lower than February, but they remain very large at an estimated 207 MMT. The WASDE report also lowered estimated feed use of wheat, which seems at odds with some of the prices being offered.

Looking ahead, the March 31, 2016 planting Intentions report and spring weather for northern hemisphere planting could be real market movers. The Corn Belt is virtually drought-free, save for a few counties in northern Minnesota, and USDA meteorologist Brad Rippey says that it has been 11 years since the last time the Midwest had an eight-week long stretch with such little drought. The odds would suggest drought is due but AgDay meteorologist Mike Hoffman predicts above-normal precipitation over the next 90 days. That will either help or hurt crop planting depending on the pattern. Still, don’t expect the warmer than normal weather to prompt farmers to plant early – their crop insurance contracts prohibit it as protection against a late frost.

2. CBOT Corn Futures

March Corn Futures

CBOT Graph

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

U.S. Drought Monitor Weather Forecast: During the next 5 days (March 10-14), an ongoing storm in the southern Plains and Delta (as of Wednesday, March 9) is expected to slowly track northeastward, dumping heavy rains (more than 2 inches, locally to 10 inches in Louisiana) on the southern Plains, lower and middle Mississippi, Tennessee, and Ohio Valleys, and New England. This is expected to cause localized flooding in many parts of the Delta (and did in northern Louisiana Tuesday night). In the Far West, Pacific storm systems are forecast to drop heavy precipitation (8-14 inches) on western sections of Washington, Oregon, and northern and central California, including the Cascades and Sierra Nevada, with lesser totals (up to 4 inches) in the northern Rockies. In addition, temperatures should be much lower with this set of storms as compared to the early March storm, producing more snow for the Cascades and Sierra Nevada. Unfortunately, little or no precipitation is expected in-between these two large events (Southwest, central and southern Rockies, northern and central High Plains). Temperatures will also average well above normal from the Rockies eastward.

For days 6-10 (March 15-19), the odds favor above median precipitation in the Rockies, northern Plains, and eastern half of the Nation (except southern Florida). Below median precipitation probabilities were found in the Far West, Southwest, south-central Plains, and southern Florida. The eastern half of the U.S. will see good chances for above normal temperatures, while near to below normal readings are likely in the West.

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

Export Sales and Exports
U.S. Export Inspections
USDA Grain Inspections for Export

Corn: Net sales of 1,172,300 MT for 2015/2016 were up 7 percent from the previous week and 37 percent from the prior 4-week average. Increases were reported for Mexico (339,100 MT), Japan (306,900 MT, including 207,600 MT switched from unknown destinations and decreases of 3,200 MT), Colombia (258,800 MT, including 85,000 MT switched from unknown destinations and decreases of 1,400 MT), Egypt (110,000 MT, including 55,000 MT switched from unknown destinations), South Korea (66,000 MT, including 60,000 MT switched from unknown destinations), China (64,000 MT, switched from unknown destinations), and Peru (53,500 MT). Reductions were reported for unknown destinations (161,000 MT) and Saudi Arabia (4,100 MT). For 2016/2017, net sales of 20,000 MT were reported for El Salvador (10,000 MT) and Peru (10,000 MT). Exports of 1,052,500 MT--a marketing-year high--were up 33 percent from the previous week and 48 percent from the prior 4-week average. The primary destinations were Japan (265,500 MT), Mexico (231,900 MT), Colombia (144,000 MT), Saudi Arabia (66,000 MT), South Korea (65,500 MT), and Venezuela (60,000 MT).

Optional Origin Sales: For 2015/2016, the current outstanding balance totals 340,000 MT, all unknown destinations.

Export Adjustments: Accumulated exports to Japan were adjusted down 63,090 MT for week ending February 18, 2016.

Barley: There were no sales reported for 2015/2016 during the week. For 2016/2017, net sales of 2,300 MT were reported for Japan. Exports of 200 MT were reported to Taiwan.

Sorghum: Net sales of 54,400 MT for 2015/2016 were up 39 percent from the previous week, but down 53 percent from the prior 4-week average. Increases for China (154,900 MT, including 101,300 MT switched from unknown destinations and decreases of 1,500 MT) and Mexico (2,500 MT), were partially offset by reductions for unknown destinations (103,000 MT). Exports of 106,900 MT were unchanged from the previous week, but down 42 percent from prior 4-week average. The destinations were China (102,400 MT), Mexico (4,400 MT), and South Korea (100 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: DDGS prices are being pressured lower, possibly due to early spring warming reducing the energy requirements of livestock and thus feed demand. There was an average $10/container decline FOB Gulf this past week not reflected yet in export numbers. The average prices for 40-foot containers delivered to Asia in March were down $2/container or less, and showed no change for April/May delivery.

USDA’s Grain Crushing and Co-Products Production Report for March indicates that the making of DDGS and most other corn co-products was down in January, along with the lower production of ethanol. DDGS exports to China continue to slide with January’s total from the U.S. at 218,961 MT at a reported average value of $208.43/MT. U.S. sorghum and hay exports to China also fell in January, though they were at average or better levels for this time of year. Still, markets for DDGS remain diverse: Canada, Ireland, Israel, Spain, Thailand, Tunisia, Turkey, Vietnam and many other places around the world. DDGS exports to Mexico in January were healthy (195,669 MT), and the Vietnamese feed market continues to grow, including for DDGS.

Ethanol Comments: USDA reports that January’s production of ethanol was lower than December but the Energy Information Administration (EIA) says that last week’s ethanol exports were the second-largest ever, and exports for January (87.1 million gallons) were at the highest level in more than a year. China was a major buyer (29.4 million gallons).

Ethanol blending margins had been improving due to a steady market and firmer gasoline prices. In its March edition of the Short-Term Energy Outlook, the EIA slightly increased its projection for U.S. ethanol production in 2016 (0.6 percent) and 2017 (0.3 percent) versus its February forecast. It predicts rising prices for gasoline ($2.02/gallon by June).

USDA made one interesting change in its March WASDE report, lowering the 2014/15 grind for ethanol by 9 million bushels.

The margin between the corn price and the value of ethanol and coproducts fell (see below). 

  • Illinois differential is $1.36 per bushel, in comparison to $1.45 the prior week and $1.97 a year ago.
  • Iowa differential is $1.20 per bushel, in comparison to $1.27 the prior week and $1.55 a year ago.
  • Nebraska differential is $1.37 per bushel, in comparison to $1.46 the prior week and $1.41 a year ago.
  • South Dakota differential is $1.34 per bushel, in comparison to $1.55 the prior week and $1.72 a year ago.

7. Country News

China: Agriculture Minister Han Changfu says that corn production will be reduced by cutting acreage in less efficient regions and that while China will import grain, it will not become reliant on them. The goal is to keep grain output stable, and to improve pricing and storage systems. Chen Xiwen of the Central Rural Work Leading Group says that corn is oversupplied but China still had a 20 MMT shortfall in overall grain production relative to demand. Corn prices fell for the second consecutive week. (Bloomberg)

Philippines: A new regulation covering GM crops was codified allowing their use and importation to resume. A lawsuit against the prior regulation had brought the country’s biotech sector to a halt. (NCBP)

South Africa: The price of corn declined to its lowest levels since November on news of beneficial rains in some areas, and on increases in the value of the rand. Meanwhile, traders bought 147,602 MT of imported corn last week in anticipation of the shortfall. (Bloomberg)

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: It was an interesting week in global freight markets. Though the Capesize market did not show any notable signs of life, the smaller size vessels (Panamax, Supramax and Handymax sectors) provided good support for the Baltic Exchange and helped to move the BDI index higher for the week. It is looking more and more like we have put a bottom into this market. This does not, however, mean there is sufficient new demand to support and sustain a move to substantially higher levels; but it is likely that the markets have stopped their downward spiral. We must recognize that there remains a large surplus of ships with many at anchor just waiting for better opportunities.

Much the same can be said for containerized grain freight rates, as they too have reached incredibility low levels which deny any profit potential for the shipping line. Container rates from the Chicago area to Asia are as low as $800-$850/TEU. Rates from the U.S. East Coast (Norfolk or Savannah) have been down to $250/TEU and the Los Angeles rates to Asia hit $150/TEU. This is good for grain sellers and end users but not at all healthy for the shipping lines.

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 Iron Ore
U.S.-Asia Market Spreads

The charts below represent year-to-date 2016 versus January-December 2015 annual totals for container shipments to Vietnam. 

Container Shipments 1
Container Shipments 2
International Freight Rates for Feed Grains

10. Interest Rates

Interest Rates