Market Perspectives June 2, 2016

1. Chicago Board of Trade Market News

Week in Review

Outlook: Momentum is positive and the moving average continues in a bullish direction. The funds are now long approximately 70,000 corn contracts. They notably and literally bought into the bullish trend long before the commercial side of the market. Perhaps weighed down more by prior market experience, the commercials did not give the short supply situation in Brazil and the export prospects of the U.S. the same credence as the funds. U.S. exports have benefited as Argentina has failed to deliver its crop from the farms to the ships that have long been waiting. (Note that the next U.S. Export Sales report will be issued on June 3.) The respectable level of export sales will not change the expected carryout tremendously, but the direction is nonetheless bullish.

U.S. weather continues to be suboptimal with late sprouting in the eastern Corn Belt, and the Midwest overall is looking at below normal precipitation for the next 10-14 days.

Things are even more bullish in Brazil where the short supply has sent the national average price to R$53/60kg ($6.27/bushel).

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) (June 1-8, 2016) is showing a very dry week on tap west of the continental divide. Heavy rains are expected in the southern Plains, Michigan’s Upper Peninsula, southern Florida, the middle Appalachians and New England. The West will also warm up under some strong ridging as temperatures are expected to be running 6-18 degrees above normal for this time of year. Cooler weather should persist over this period in Texas, the Midwest, the Mid-Atlantic and the Northeast. 

Under strong model and forecast tool agreement, CPC’s 6-10 day outlooks are showing a strong ridge building in the West and extending into the central and northern Plains. Temperatures here will likely be running well above normal for the period June 7-11. Temperatures across the Southeast also look to be above normal while the Northeast is most likely to experience below-normal temperatures during this time frame. As for precipitation, the odds are tilted toward above-normal totals in the Pacific Northwest, the northern Great Basin and northern New England. The odds are not looking good in the central and southern Great Plains, Midwest, Gulf Coast region (except for southern Florida), and Mid-Atlantic, with rainfall looking likely to be below normal through early June.

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

Note: Due to the holiday on Monday, May 30 2016 the next U.S. Export Sales report will be released on Friday, June 3 2016. The June 9, 2016 edition of Market Perspectives will have updated commentary.

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: Price increases were impressive all around based on the weekly survey of traders, though this week the larger jump was for deliveries to Asian markets. Most of the interest is coming for near-term delivery and that is where price increases are sharpest. Containers delivered in June to Korea (+$25), Taiwan (+$23) and Vietnam (+$23) saw the largest jumps. The average change across all markets was up an average $16/container for June delivery. Deliveries for July were up an average $11/container and for August the average increase was $9/container. There is interest in deferred deliveries but mostly just because of the discounts. 

Chinese demand has purportedly increased but overall buyer interest is also much better than it was. The strong upward pressure on soybean meal prices does not look like it will abate soon. 

USDA’s Grain Crushings and Co-Products report issued on June 1, 2016 showed DDGS production in April at 1.702 MMT, up 2 percent for the same month a year earlier. Offsetting the increase is a decline in the production of DDG without solubles and non-modified wet DDG. 

Ethanol Comments: USDA’s Grain Crushings and Co-Products report issued on June 1, 2016 indicates that 392.4 million bushels of corn were used for ethanol production in April, down from 407.7 million bushels used in April of last year.

U.S. ethanol production rose 1.5 percent last week to an average of 960 thousand barrels per day; stocks according to the Energy Information Administration (EIA) continue to decline (-0.2 percent) and now stand at 20.77 million barrels.

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 $1.83 per bushel, in comparison to $1.78 the prior week and $2.39 a year ago.
  • Iowa differential is $1.78 per bushel, in comparison to $1.63 the prior week and $2.14 a year ago.
  • Nebraska differential is $1.75 per bushel, in comparison to $1.63 the prior week and $1.84 a year ago.
  • South Dakota differential is $2.22 per bushel, in comparison to $2.15 the prior week and $2.33 a year ago.

7. Country News

Brazil: Chicken production has fallen by 10 percent in the past three months and looks to decline further due to the high cost of corn. (Bloomberg)

China: The government plans to increase the June 3, 2016 corn auction volume by 1 MMT to a total of 3.42 MMT. (Reuters)

Malawi: The government is seeking to buy 1 MMT of maize from Europe at a cost of around $350 million but it is unlikely to find the white maize preferred by consumers. (WPI)

Venezuela: Empresas Polar SA, the country’s largest food processor, announced it was suspending beer production due to the unavailability of foreign exchange on which to import barley. (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: Global ocean freight markets were very mixed this week. The Baltic Dry-Bulk indices continued to slide lower while the physical market in the Atlantic continued to move slightly upward. Physical markets in the Pacific, however, slipped lower. Business in the U.S. Gulf has provided better-than-expected demand. There was not much volume traded and the market is mostly trying to find a level of balance.

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 China.

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

10. Interest Rates

Interest Rates