Market Perspectives May 26, 2016

1. Chicago Board of Trade Market News

Week in Review

Outlook: Corn has been experiencing an impressive rally, in part due to the improved export sales pace and troubles with Brazil’s winter crop. Still, one would expect some exiting of positions ahead of the three-day long market break for this weekend’s U.S. Memorial Day holiday.

The fact that corn plantings are roughly at the five-year average is considered bullish by some, especially when adding in some forecasts for a droughty U.S. Corn Belt due to the departure of the El Nino pattern. Add to that some cool dampness in states like Ohio and Indiana that have slowed planting there. At the same time the rally has spurred thoughts that higher prices will encourage more corn to get planted. U.S. export sales of corn continue to be positive and may require USDA to adjust slightly upward the estimated marketing year total.

The harvest remains slow in Argentina as soybeans are receiving the attention of the machinery. China’s feed demand has been robust at the same time there are reported quality problems with government grain stocks – all of which has kept the domestic corn price from declining. If China has trouble consuming its own product, it will increase the challenge of achieving its goal of overall supply destruction. Corn planting in Eastern Europe has gone well and larger crops are expected this year. However, the lack of near-term farmer selling has enabled an unusual large sale of French corn to Egypt.

The International Grains Council (IGC) raised its forecast for world corn production, part of which is occurring in countries that traditionally import corn, and this will limit any growth in the actual volume of exports. Note that a relatively small share of world corn is actually traded and, because of the radius of the demand curve, the ebb and flow of exports has an outsized impact on corn prices. Moreover, what is traded has to compete with abundant wheat being sold as feed.

2. CBOT Corn Futures

July Corn Futures

CBOT Corn Futures Graph

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

US Crop Planting Progress

U.S. Drought Monitor Weather Forecast: The NWS WPC 7-Day Quantitative Precipitation Forecast (QPF) calls for significant rainfall accumulations across the nation’s midsection – primarily focused on Texas, Plains, and western portions of the Midwest with accumulations from three-to-six inches while much of the South and Western U.S. area is forecasted to be generally dry. The CPC 6–10 day outlooks call for a high probability of above normal temperatures in the eastern half of the U.S. and Far West while below normal temperatures are expected in the Desert Southwest, extending northward into the eastern Great Basin and Central Rockies. Below normal precipitation is forecasted for the Pacific Northwest, much of California, western Great Basin, and across portions of the Northeast while there is a high probability of above normal precipitation across the Northern Rockies, Plains, Mid-Atlantic, South, and Southeast.

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

US Export Sales and Exports
US Export Inspections
USDA Grain Inspections for Export

Corn: Net sales of 1,381,100 MT for 2015/2016 were down 6 percent from the previous week, but unchanged from the prior 4-week average. Increases were reported for Japan (299,700 MT, including 94,700 MT switched from unknown destinations and decreases of 62,400 MT), South Korea (193,000 MT), Colombia (171,600 MT, including 37,500 MT switched from unknown destinations), Saudi Arabia (138,800 MT, including 65,000 MT switched from unknown destinations), Egypt (135,300 MT, including 23,400 MT switched from unknown destinations), and Morocco (129,400 MT, including 51,600 MT switched from unknown destination and 16,500 MT switched from Canada). Reductions were reported for Canada (15,900 MT), Guatemala (10,100 MT), and Costa Rica (1,400 MT). For 2016/2017, net sales of 246,200 MT were reported for Mexico (136,600 MT), unknown destinations (64,600 MT), Colombia (36,500 MT), and Honduras (8,500 MT). Exports of 1,125,000 MT were down 4 percent from the previous week and 3 percent from the prior 4-week average. The primary destinations were Mexico (316,200 MT), Japan (213,800 MT), Colombia (86,600 MT), Taiwan (78,600 MT), Morocco (71,900 MT), Saudi Arabia (68,800 MT), Peru (65,800 MT), and Guatemala (40,400 MT).

Optional Origin Sales: For 2015/2016, the current optional origin outstanding sales balance totals 392,000 MT, all unknown destinations.

Barley: There were no sales reported during the week. Exports of 100 MT were reported to Taiwan.

Sorghum: Net sales of 113,000 MT for 2015/2016 were up noticeably from the previous week and up 9 percent from the prior 4-week average. Increases reported for China (102,300 MT, including 51,500 MT switched from unknown destinations and decreases of 2,200 MT), Japan (10,200 MT), and Mexico (500 MT). Exports of 66,200 MT were down 14 percent from the previous week and 44 percent from prior 4-week average. The destinations were China (49,300 MT) and Mexico (16,800 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: The spike in soybean meal prices is putting upward pressure on the cost of DDGS. Adding to the price increases are buyers that had held off, hoping the cost would decline but can no longer wait to refill their pipeline. This could keep prices elevated for a while. Price increases in recent weeks have swung back and forth, showing up at boarding facilities in the U.S. one week, and then getting reflected in export destinations the following week. 

This week it was U.S. export locations rising with the average FOB Gulf rate increasing by an average of $14/container. The only decline in price across 14 tracked markets were minor dollar or two reductions in container prices headed to Indonesia in July/August.

Ethanol Comments: China's ethanol imports declined in April but state-owned COFCO Agri has reportedly set up a U.S. ethanol trading desk, which implies some longer term interest.

U.S. ethanol production and stocks continued their decline. The Energy Information Administration (EIA) again reduced (-1.4 percent) the estimated stocks of ethanol to 20.8 million barrels, and pegged production for the past week to be down (-2.0 percent) to 946,000 barrels per day.

The margin between the corn price and the value of ethanol and coproducts was up this past week in all four key markets (see below). 

  • Illinois differential is $1.78 per bushel, in comparison to $1.77 the prior week and $2.60 a year ago.
  • Iowa differential is $1.63 per bushel, in comparison to $1.54 the prior week and $2.35 a year ago.
  • Nebraska differential is $1.63 per bushel, in comparison to $1.60 the prior week and $2.11 a year ago.
  • South Dakota differential is $2.15 per bushel, in comparison to $1.87 the prior week and $2.51 a year ago.

7. Country News

Brazil: The Agriculture Ministry will sell 160,000 MT of corn from stockpiles with prices pegged at 17.50 Reais/kg. (Bloomberg) 

China: An auction for 2.0 MMT of state-owned corn will begin on Friday. Prices will range from $1,300-1,450 yuan/MT ($197-221/MT), which is very cheap but involves stock from 2012. Weekly auctions are expected into October. (Reuters) 

South Africa: The Crop Estimates Committee raised its maize production forecast by 1.5 percent to 7.16 MMT, which would be 3.8 percent higher than a Reuter’s survey of crop analysts. (Reuters)

Ukraine: Corn crop estimates are rising with some private estimates as high as 28-29 MMT due to favorable spring weather. (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: As mentioned previously, we are in a low-priced, but bumpy, global ocean freight environment. Hope amongst vessel owners still springs eternal, but the oversupply of ships continues to create a ceiling on how high any temporary rally can go. So, what goes up over the course of a week or two eventually comes back down. This has been another bumpy week as the Baltic Dry-Bulk indices slipped back and the physical market moved up slightly in most markets. Maybe the reconciliation will come next week?

It is still a buyers’ market, both for spot and 60-day vessel fixtures and for ship buyers in the used vessel market. It is considerably cheaper to purchase a two-year old Cape or Panamax vessel as opposed to building a new one – and this is a big problem for Asian shipyards.

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 year-to-date 2016 versus January-December 2015 annual totals for container shipments to Taiwan.

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

10. Interest Rates

Interest Rates