Market Perspectives June 23, 2016

1. Chicago Board of Trade Market News

Week in Review

Outlook: The market had been rising based on an extended hot weather forecast, despite consistent very good crop ratings (75 percent is good to excellent), but it has taken just four trading days this week to erase a majority of the corn contract’s spring gains.

The shift occurs as the growing season changes into its most critical period. If there is going to be a blast of yield-reducing dry heat, it is not going to occur during the coming week. However, the GFS and EU weather models do not agree much beyond that. Moreover, pollination will be occurring in about three weeks and that is when moisture is most critical. After that, it is just 20 more days to maturity. Because the season started with such high production estimates, it will not take much adversity to bring that number down.

Non-commercials had befuddled more cautious traders with their jump into very long positions, and this week they began to sell it off. However, this could be just the second directional change of a very dangerous whipsaw. One bullish piece is the possibility of another reduction in the size of the Brazilian corn crop. U.S. corn export inspections were in the middle of the expected range this week. Still, the state of play going forward is that feed wheat is now once again priced below corn, and it will start gaining market share.

Other than weather, the market is focused on the quarterly stocks and planted acre revision reports to be issued by USDA in one week. Soybeans continue to attract a better price, and this should show in the amount of corn that gets planted.

Finally, it should be noted that options on the July contract expire tomorrow (June 24).

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
US Crop Condition

U.S. Drought Monitor Weather Forecast: A pair of disturbances will continue to track east along a stalled frontal boundary, producing a swath of moderate to heavy rain (1 to 3 inches, locally more) from the lower Great Lakes into the Mid-Atlantic States. Somewhat spottier showers will develop south of the front from the middle Mississippi Valley into the Carolinas, though some of this rain could be locally heavy as well. Farther west, a pair of upper-air disturbances will trigger scattered showers and thunderstorms, the first over the central Plains and middle Mississippi Valley, while the second moves into the Northwest. In contrast, hot, mostly dry weather will prevail across Texas, Oklahoma, and much of the West. The NWS 6- to 10-day outlook for June 28-July 2 calls for above-normal temperatures in the Northeast, Gulf Coast, and from the Plains to the Pacific Coast States. Conversely, cooler-than-normal weather is anticipated across the Corn Belt and Tennessee Valley. Above-normal rainfall is expected across much of the southern and eastern U.S., including the Four Corners, while drier-than-normal conditions prevail from the Northwest into the Great Lakes Region.

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 870,700 MT for 2015/2016 were down 4 percent from the previous week and 32 percent from the prior 4-week average. Increases were reported for Japan (232,400 MT, including 109,600 MT switched from unknown destinations), Mexico (162,400 MT), Venezuela (86,400 MT, including 30,000 MT switched from unknown destinations and decreases of 600 MT), South Korea (65,200 MT), Israel (64,600 MT, including 60,000 MT switched from unknown destinations), Chile (48,100 MT, including 45,000 MT switched from unknown destinations), Algeria (44,300 MT, including 45,000 MT switched from unknown destinations and decreases of 700 MT), and Colombia (40,300 MT). Reductions were reported for Saudi Arabia (4,600 MT) and the Dominican Republic (200 MT). For 2016/2017, net sales of 550,300 MT were reported for unknown destinations (186,400 MT), Japan (158,000 MT), Saudi Arabia (65,000 MT), Costa Rica (48,000 MT), and Colombia (31,000 MT). Exports of 1,208,200 MT were down 20 percent from the previous week, but up 6 percent from the prior 4-week average. The primary destinations were Japan (285,300 MT), Mexico (278,500 MT), Saudi Arabia (140,400 MT), Taiwan (79,000 MT), South Korea (65,300 MT), Israel (64,600 MT), and Venezuela (59,400 MT).

Optional Origin Sales: For 2015/2016, the current optional origin outstanding sales balance is 394,800 MT, all unknown destinations.

Barley: There were no sales reported during the week. Exports of 500 MT were reported to Taiwan (300 MT) and Japan (200 MT).

Sorghum: Net sales of 168,000 MT for 2015/2016 were up noticeably from the previous week and up 37 percent from the prior 4-week average. Increases were reported for unknown destinations (115,000 MT) and China (53,000 MT). Exports of 1,600 MT were down 99 percent from the previous week and 98 percent from the prior 4-week average. The destinations were China (1,300 MT) and Mexico (300 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: The demand for corn by China’s feed millers remains very strong and prices are rising ($294.90/MT average), which should make DDGS more attractive. Still, it is Vietnam according to media reports that is going big for largely U.S. DDGS. Imports from the U.S. have reportedly skyrocketed. 

At this juncture, DDGS buyers are as confused as others in the commodity markets. Some buyers hope the price will go lower, while others are stepping in now to take advantage of the recent price drop. 

Ethanol Comments: Chinese demand for ethanol remains very strong with imports from the U.S. totaling nearly 131 million liters during April, a record, and at a FOB port value of $0.45/liter or $1.69/gallon. It has already reached an all-time annual record of 416 million liters at an average value of $0.44/liter or $1.66 per gallon for the first four months of 2016. The table below compares the details of the U.S. exports to China for those first four months of each year from 2011 through 2016.

Daily U.S. ethanol production fell slightly this past week to an average of 962,000 barrels per day. Stock levels also fell slightly to 21.1 million barrels. 

The margin between the corn price and the value of ethanol and coproducts was up in all four key markets (see below) this past week, and are above levels recorded this time a year ago. 

  • Illinois differential is $1.93 per bushel, in comparison to $1.825 the prior week and $1.81 a year ago.
  • Iowa differential is $1.92 per bushel, in comparison to $1.90 the prior week and $1.73 a year ago.
  • Nebraska differential is $1.66 per bushel, in comparison to $1.60 the prior week and $1.51 a year ago.
  • South Dakota differential is $2.13 per bushel, in comparison to $2.08 the prior week and $1.78 a year ago.

7. Country News

Argentina: Agriculture Minister Ricardo Buryaile predicts his country’s corn planted area will increase by 20 percent in the upcoming summer season. He says the additional 10 to 15 MMT of corn production will mean a decline in soybean output. (Reuters)

Brazil: Agriculture Minister Blairo Maggi says his government will take action to boost supplies of both soybeans and corn. The plan is to raise the minimum price for corn, which in addition to this year’s drought has varied little in planting area the past three years. (Reuters)

Black Sea: There is still some old crop corn for sale but the rise in CBOT prices has prompted farmers to hold on to their crop. They are unlikely to let go of their supply until they see how the pollination stage goes for their new crop. (WPI)

China: Nearly half (1.18 MMT) of the corn offered at auction (2.52 MMT) was sold this past week out of state reserves. Jilin province was able to sell 98 percent of the corn it offered. (Bloomberg)

India: March imports of 225,000 MT of corn were the first in 16 years. The goal was to buy 500 KMT of non-GMO corn within the short timeframe allotted. India needs more corn but may not be able to get it due to the higher price being required. (WPI)

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: The Baltic Indices thought they found reason to rally this week and the physical markets reluctantly followed, albeit to a lesser degree. The Capesize vessel market actually slipped back a bit this week while the Panamax and Handymax markets showed a little strength. We will have to see if this market support can hold or if this is just another case of the freight markets bouncing around without any true direction.

The new and expanded Panama Canal is scheduled to open for business on Sunday and operators claim they have a lineup of vessels registered to move through the new locks.

 

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 Japan.

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

10. Interest Rates

Interest Rates