Market Perspectives March 31, 2016

1. Chicago Board of Trade Market News

Week in Review

Outlook: The market has been relatively firm for three weeks but today’s balance sheet changes prompted by USDA’s quarterly stocks and prospective plantings reports has moved the goal posts. Corn is now at new contract lows. The quarterly corn stocks number was actually slightly below the average of estimates from analysts (off-farm sorghum stocks are large). And the export sales report was unsurprising, but there is getting past the shock of the prospective plantings number – 93.601 million acres when the average guess was that it would be 90.05 million. If this comes to fruition, some predict corn at the low to mid two-dollar range at harvest.

Corn had been playing the wet blanket before the reports, and apparently justifiably so. Funds likely regret that they had been chipping away at their short positions ahead of the reports. The previous levels of technical support (100-day moving average of $3.74) and resistance (50-day moving average of $3.67) are now in the past. Warmer weather is in the forecast for the Corn Belt as the jet stream shifts northward, which will facilitate the planting of those additional millions of acres. Expect planting to take off in the second half of April.

The situation is not completely bearish. Not reflected in today’s USDA report is the excess rain in the Delta, which has already negated some corn acres and the switch from corn to soybeans in the region could be 1 to 2.5 million acres. Meanwhile, a large amount of the forecasted new corn acres will be in the Plains, an area with lower yields and notorious for weather issues. There is a question about whether farmers will be able to obtain enough anhydrous in a timely manner for that much area. And if it is not based on a reasonable cost, a switch to soybeans may make more sense. There is the external factor of a Federal Reserve that has taken a dovish stance, sending the dollar lower. Finally, weather can provide bearish support but it can also provide bullish momentum.

Please note that the U.S. Grains Council is pleased to release a grains conversion calculator app. The app converts English units to metric units and vice-versa for grains and related measures. It is available in the Apple’s App Store, Google Play Store, Amazon’s Appstore or Microsoft’s Windows Store by searching for “grain conversion calculator.” The iPhone app is available here.

2. CBOT Corn Futures

May Corn Futures

CBOT Graph

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

U.S. Drought Monitor Weather Forecast: A storm system will cross the Great Lakes region on March 29, producing a mix of rain and snow. The storm’s trailing cold front will reach the Atlantic Seaboard on March 30, but should stall across the lower Southeast. Precipitation totals associated with the storm (and its cold front) could reach 2 to 5 inches – in the form of heavy showers and locally severe thunderstorms – across the Southeast, and 1 to 2 inches along and north of the path of the low-pressure system. During the first few days of April, warm, dry weather will dominate the West, while a blast of cold air and snow showers will engulf the Great Lakes and Northeastern States. During the next 5 days, the southern Plains will remain mostly dry with rapid temperature fluctuations.

The NWS 6- to 10-day outlook for April 5-9 calls for the likelihood of above-normal temperatures from the Pacific Coast to the Plains, while colder-than-normal conditions will dominate the eastern U.S. – especially the Northeast. Meanwhile, near- to below-normal precipitation in many areas of the country will contrast with expectations for wetter-than-normal weather across the Great Basin and neighboring areas, as well as the Great Lakes region and the Northeastern and Mid-Atlantic States.

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 790,600 MT for 2015/2016 were down 2 percent from the previous week and 27 percent from the prior 4-week average. Increases were reported for Taiwan (266,000 MT), South Korea (127,000 MT, including 60,000 MT switched from unknown destinations), Japan (126,600 MT, including 90,600 MT switched from unknown destinations and decreases of 64,100 MT), Colombia (112,400 MT), and El Salvador (65,200 MT, including 35,800 MT switched from unknown destinations and 15,600 MT switched from Colombia. Reductions were reported for unknown destinations (175,400 MT) and the French West Indies (4,000 MT). For 2016/2017, net sales of 69,600 MT were reported for unknown destinations (72,200 MT) and Nicaragua (3,000 MT). Reductions were for Japan (5,600 MT). Exports of 1,136,000 MT--a marketing-year-high--were up 14 percent from the previous week and 22 percent from the prior 4-week average. The primary destinations were Japan (333,600 MT), Mexico (292,000 MT), Colombia (180,800 MT), El Salvador (78,000 MT), China (64,100 MT), Panama (41,300 MT), and Mozambique (39,500 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. For 2016/2017, net sales of 100 MT were reported for Japan.

Sorghum: Net sales reductions of 7,200 MT for 2015/2016 resulted as increases for Pakistan (54,000 MT, including 56,300 MT switched from unknown destinations and decreases of 2,400 MT) and Mexico (1,100 MT), were more than offset by reductions for unknown destinations (60,000 MT) and China (2,200 MT). Exports of 225,700 MT were up 58 percent from the previous week and 78 percent from prior 4-week average. The destinations were China (150,900 MT), Pakistan (74,000 MT), and Mexico (900 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: DDGS is a co-product of corn and so USDA’s prediction of a lot cheaper corn is a bearish factor on DDGS. Prices are being pushed downward with the average of $6 per container this past week. The average for a container of DDGS to destinations in Asia during April was $203, but that number falls below $200 to $199 per container for May and June shipment. Under the law of supply and demand, these lower prices should have some positive impact on demand. USDA forecasts that DDGS production will be 4 percent greater this year, and Chicago futures are indicating it will be less expensive to obtain. 

Please note that the U.S. Grains Council is pleased to release a grains conversion calculator app. The app converts English units to metric units and vice-versa for grains and related measures. It is available in the Apple’s App Store, Google Play Store, Amazon’s Appstore or Microsoft’s Windows Store by searching for “grain conversion calculator.” The iPhone app is available here

Ethanol Comments: Total stocks of ethanol were up 2.2 percent this past week to 23 million barrels, even though production fell by 3,000 barrels per day to an average 992,000 barrels per day.

The margin between the corn price and the value of ethanol and coproducts was up this past week in all four market basket states. (See below.) 

  • Illinois differential is $1.17 per bushel, in comparison to $1.33 the prior week and $1.93 a year ago.
  • Iowa differential is $1.17 per bushel, in comparison to $1.27 the prior week and $1.65 a year ago.
  • Nebraska differential is $1.59 per bushel, in comparison to $1.48 the prior week and $1.51 a year ago.
  • South Dakota differential is $1.40 per bushel, in comparison to $1.48 the prior week and $1.90 a year ago.

7. Country News

Brazil: The largest purchase of Argentine corn in over 15 years occurred this week in Brazil with a reported 500 MMT lined up for shipment through May. Brazil had exported 10 MMT of corn on a trade prompted by the low value of the Real but now the government has dropped the import duty (PIS/Confins) and will sell stocks to cool an overheated market. (Reuters)

Bulgaria/Romania: Higher profit and lower vulnerability to summer drought will encourage farmers to switch about 5 percent of the acreage previously in corn over to sunflowers. (WPI)

China: The government will end a 9-year corn reserve program, likely switching to a form of target prices, and sell 40-50 MMT of surplus corn. (Reuters)  

Saudi Arabia: The 2015/16 marketing year will see imports of 8.5 MMT of barley and 3.5 MMT of corn, and the goal is to increase the use of prepared feeds. (USDA/FAS/GAIN)

Ukraine: Demand for spring crops (soybeans, corn and sunflower) is so great that their production area could surpass that of the winter crops (wheat, rye) that have long been dominant. Even barley will see more spring planting than winter sown crop this year. Corn is more expensive to produce but can be more profitable than barley. (Reuters)

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: Ocean freight markets in the Atlantic got a little bounce this week. The Baltic indices are higher in the Atlantic but still under pressure in the Pacific. As usual the physical markets have not moved as much and remain a buyers’ market. The smaller size vessels are faring better than the big ones and that trend is likely to continue for quite a while. China remains the big story. Everyone knows their demand for raw materials has slowed substantially and we are now watching to see the impact of China’s new corn support program and how it affects (slows) the flow of feed grain imports. Corn, sorghum, barley, DDGS and Cassava will certainly be impacted.

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 Hong Kong. 

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

10. Interest Rates

Interest Rates