Market Perspectives July 7, 2016

1. Chicago Board of Trade Market News

Week in Review

Outlook: Last week’s planted acreage and stocks reports continued to reverberate through the market. Having more than expected acres of corn and larger than expected stocks, the largest in 29 years, invoked heavy downward pressure on prices. Moreover, the new crop remains at 75 percent good to excellent condition. In addition, corn silking was at 15 percent, up from last year’s 10 percent and the average of 13 percent. Corn inspected for export was an unimpressive 45.9 million bushels last week.

Despite a view that the market is over-sold, the CONAB report is the only thing that kept the market from retesting the April 1, 2016 low of $3.5575/bushel. Indeed, the market was due a snapback correction and it found a rationale in CONAB’s announcement that the Brazilian corn crop is over 7 MMT smaller than forecast one month ago. This was apparent even before CONAB’s announcement given that prices in Brazil for feed alternatives such as millet and sorghum have been soaring and are now at parity with corn. Still not accounted for in the market is the fact that the Argentine corn crop continues to get soaked with rain, slowing harvest and raising moisture levels to 18-19 percent. This means continuing penalties for non-delivery, plus the risk of damage.

Prices in Chicago could go lower but future declines will become harder to defend at some point, and the risk of adverse weather impacts is not completely over. Some say that anything below $3.50 is risky.

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 Condition

U.S. Drought Monitor Weather Forecast: During the next 5 days (July 7-11), moderate precipitation (more than an inch) should fall along the northern tier of States (Washington-Oregon eastward to New England), and in the northern and central Great Plains, Midwest, Tennessee and Ohio Valleys, and Appalachians. The greatest totals (more than 2.5 inches) were forecast for North Dakota, the western Corn Belt, the Tennessee Valley, and northern New England. Little or no precipitation was expected for the southwestern quarter of the Nation, the southern Plains, and Florida. Temperatures should average below-normal in the West, northern Plains, upper Midwest, and New England, with above-normal readings in the southern Plains and along the southern and mid-Atlantic Coast States.

The NWS 6- to 10-day outlook for July 12-16 favors above-median precipitation along the U.S.-Canadian border, the Midwest, Tennessee Valley, and the southern Appalachians, with sub-median rainfall probable for most of the West and Rockies, south-central Plains, along the Gulf Coast, and in New England. Temperatures are likely to be subnormal in the northwestern quarter of the nation, while the odds favor above-normal readings in most of the eastern half of the U.S. and the southern Plains.

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

The following report is from the week ending June 23, 2016. The updated export sales report will be available in next week’s edition of Market Perspectives or on July 8, 2016 via USDA/FAS’ website.

Corn: Net sales of 468,500 MT for 2015/2016 were down 46 percent from the previous week and 59 percent from the prior 4-week average. Increases were reported for South Korea (259,800 MT, including 131,000 MT switched from unknown destinations and decreases of 6,000 MT), Japan (140,300 MT, including 156,800 MT switched from unknown destinations and decreases of 54,000 MT), Vietnam (112,000 MT, including 125,000 MT switched from unknown destinations), Taiwan (65,800 MT), Colombia (60,000 MT), Egypt (58,800 MT, including 65,000 MT switched from unknown destinations and decreases of 6,200 MT), and Portugal (54,000 MT, including 50,000 MT switched from unknown destinations). Reductions were reported for unknown destinations (461,800 MT), Algeria (3,700 MT), Guatemala (2,600 MT), and Nicaragua (2,500 MT). For 2016/2017, net sales of 536,100 MT were reported for South Korea (138,000 MT), Mexico (135,900 MT), Japan (120,000 MT), Costa Rica (84,200 MT), and unknown destinations (48,500 MT). Exports of 1,497,200 MT were up 24 percent from the previous week and 29 percent from the prior 4-week average. The primary destinations were Japan (370,200 MT), Mexico (283,600 MT), Vietnam (176,400 MT), South Korea (125,900 MT), Peru (99,000 MT), and Chile (77,800 MT).

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

Barley: Net sales of 1,000 MT for 2016/2017 were reported for Vietnam. Exports of 400 MT were reported to Taiwan.

Sorghum: Net sales of 84,600 MT for 2015/2016 were down 50 percent from the previous week and 38 percent from the prior 4-week average. Increases reported for China (112,600 MT, including 53,000 MT switched from unknown destinations and decreases of 1,400 MT) and Colombia (25,000 MT), were partially offset by reductions for unknown destinations (53,000 MT). Exports of 56,300 MT were up noticeably from the previous week, but down 33 percent from the prior 4-week average. The destinations were China (53,100 MT) and Mexico (3,200 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: DDGS prices continued to track those of corn in a downward spiral with near-term July delivery plunging the most and FOB Gulf taking a hit. The only market to show strength this past week were containers of DDGS to Japan for August/September delivery, which were up a few dollars. In fact, the largest reductions have been in the nearby July market with less impact in the August/September delivery months.

The DDGS market will likely stabilize now that corn futures have potentially found a near bottom. With pollination at hand and the market sending a clear signal that price has stabilized, it will be clearly attractive enough to stimulate additional demand.

Ethanol Comments: The U.S. ethanol market is increasingly being influenced by exports. Platts reports that the U.S. West Coast is being positioned to become the new export outlet for ethanol being shipped to Asia. The shorter turnaround and avoidance of congestion at the Gulf are pluses, though the lower cost of barging the fuel down the Mississippi and the larger number of available tankers remain an advantage for NOLA.

Ethanol production this past week at an average of 984 thousand barrels per day was 19 percent below a week ago, and yet stocks on hand rose by 1.8 percent to 21.6 million barrels.

The margin between the corn price and the value of ethanol and coproducts was higher this past week in all four reference markets (see below), and the spread versus this time last year continues to widen. 

  • Illinois differential is $2.20 per bushel, in comparison to $1.92 the prior week and $1.74 a year ago.
  • Iowa differential is $2.23 per bushel, in comparison to $2.03 the prior week and $1.52 a year ago.
  • Nebraska differential is $1.99 per bushel, in comparison to $1.67 the prior week and $1.37 a year ago.
  • South Dakota differential is $2.22 per bushel, in comparison to $2.09 the prior week and $1.65 a year ago.

7. Country News

China: Corn for January delivery fell to $227.86/MT on the Dalian Exchange while the sale of government stocks from 2012 netted $247.77/MT in Guangdong. (Bloomberg)

Brazil: Agriculture Minister Blairo Maggi announced that he intends to raise the minimum corn price in order to boost production next year. Rabobank forecasts as much as a 15 percent increase in corn area in 2016/17. (Bloomberg) However, farmers in Brazil say that the lack of money, either through credit or barter, means that planted acreage will actually decline. (WPI)

India: More government corn imports are contemplated despite the fact that higher non-GMO based prices would force feed and consequently poultry and egg prices to the point of demand destruction. Importing GMO corn would save at least 15 percent of the cost. Spot corn prices are up over 40 percent in just over the past two months. (WPI)

India: Ethanol Production will decline by 8 percent to 1.9 billion liters next year due to two straight growing seasons with fewer sugarcane acres. The country is expected to import 600 million liters, versus 440 million liters in the current year. (FAS/GAIN)

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: Traders at the Baltic Freight Exchange think that things have turned around and are worthy of higher values. Baltic indices continued their upward momentum this week and reached levels not seen since September 2015. Market support was based on tightness of freight in the North Atlantic Panamax and Handymax sectors.

All-in-all, it looks like the Baltic Index for Panamax vessels and the physical markets hit bottom on February 1, 2016 and have bounced around and moved higher each month since.

On February 1, 2016 the P-2 Panamax Baltic Index in the Atlantic was at a low of 5,244; it is now 11,188, up 5,944 or 113 percent. During the same period the P-3 Panamax Index hit a low of 1,938; it is now 5,901, up 3,963 or 204 percent. Average daily hire rates for Panamax vessels over this time period have moved from around $4,500/day to $6,400/day, a jump of $1,900/day or 42 percent.

Over the same period the physical freight market has risen from a low of $22.50/MT (U.S. Gulf to Japan) to $31.25/MT (up 39 percent), and Panamax rates from the U.S. PNW to Japan have gone from $12.75/MT to 17.00 (up 33 percent). Obviously the physical markets have not been as enthusiastic as the Baltic indices. This is one market rally that has certainly not been led by the Capesize market; it is the smaller ships doing the work. The Baltic Exchange traders may be getting a bit too excited. We will have to see, as we still have an oversupply of ships.

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 Malaysia.

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

10. Interest Rates

Interest Rates