Market Perspectives September 22, 2016

1. Chicago Board of Trade Market News

Week in Review

Outlook: Trading has been range-bound and somewhat lackluster in the week following the USDA WASDE report (issued September 12) with little outside news to influence prices. Buying strength was noted early in the week as funds pared down short positions and as wet weather in the Midwest increased concerns that some harvest delays may occur. The weather outlook continues to include rain for key parts of the corn belt through the weekend. Commercials have been buyers this week taking advantage of low prices to procure grain. 

Wednesday’s Federal Reserve meeting and quarterly press conference was expected to have a more pronounced impact on the corn market this week. The Fed’s decision to leave rates unchanged “for the time being” sent the U.S. dollar index lower which would normally be bullish for corn. The corn market, and agricultural commodities at large, mainly shrugged off the report and worked their way lower. The Fed’s decision to postpone a rate hike eliminates some uncertainty for the grain markets in that rate-hike induced volatility in the U.S. dollar or equities has been delayed at least until December. 

U.S. weekly corn export net sales increased over the week prior by 218,000 MT, coming in at 921,900 MT. The weekly sales figure was at the high end of analysts’ expectations and should be viewed as bullish for corn in the near term. Beyond exceeding last week’s sales figure, net sales this week were above the pace (760,000 MT) needed to reach USDA’s projections for the 2016/17 marketing year. Weekly shipments (1.353 MMT) were also above the pace needed for this week’s report (1.074 MMT). The tight Brazilian and South American supplies are keeping U.S. exporters very competitive and expectations are for U.S. corn exports to continue to impress. The quick pace of corn exports so far this marketing year adds importance to the September 30 USDA Grain Stocks report which will provide a much-needed look at how much corn is in the bins. 

December corn futures remain under bearish pressure but have likely put in harvest lows. The December contract embarked on a three-day streak of “higher highs” to start this week but retreated Thursday on comparatively light volume. Importantly for bulls, however, Thursday’s close remained above the 10-day moving average (by ½ cent) which keeps some bullish momentum that could be revived by fundamental news. Some technicians are arguing December corn is forming a “head and shoulders” bottom; the head occurring at the August 31 contract low ($3.14 ¾) and the August 19 and September 12 highs of $3.44 ¼ and $3.43 ¼, respectively, forming the shoulders. Whether the December contract has formed a major pricing bottom remains to be seen, but these chart points certainly form the support and resistance points that will guide trading going forward. 

2. CBOT Corn Futures

CBOT December Corn Futures

CBOT Corn Futures Graph

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

U.S. Drought Monitor Weather Forecast: During the next 5 days (September 22-26), most dryness or drought areas east of the Mississippi River are not expected to receive significant rainfall. Beneficial rain is, however, forecast for some areas west of the Mississippi River, including the southern Plains (2-3 inches), and from the northern High Plains and northern Rockies southward across northern Utah (1.5 to locally as much as 6.0 inches). During the 6-to-10-day period, September 27-October 1, odds favor above-median precipitation across the south-central contiguous U.S., peninsular Florida, and the Upper Mississippi Valley/Dakotas region. Odds favor below-median precipitation for portions of the mid-Atlantic, Carolinas, northern Georgia, and eastern parts of Kentucky and Tennessee. Below-median precipitation is also favored for most areas west of the eastern slopes of the Rockies. 

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 921,900 metric tons were reported for 2016/2017. The primary destinations were Mexico (413,800 MT), Peru (134,100 MT, including 89,500 MT switched from unknown destinations and decreases of 200 MT), South Korea (122,900 MT, including 120,000 MT switched from unknown destinations and decreases of 5,100 MT), Venezuela (57,000 MT), Colombia (56,800 MT), and Guatemala (41,500 MT, including 39,600 MT switched from unknown destinations). Reductions were for Chile (3,400 MT), Bangladesh (1,900 MT), and Morocco (1,500 MT). Exports of 1,353,100 MT were reported to Japan (296,300 MT), South Korea (264,700 MT), Mexico (249,700 MT), Peru (125,100 MT), Taiwan (79,900 MT), Chile (61,900 MT), and Bangladesh (59,000 MT). 

Optional Origin Sales: For 2016/2017, the current outstanding balance totals 341,000 MT is for unknown destinations (276,000 MT), and Taiwan (65,000 MT). 

Barley: Net sales of 800 MT for 2016/2017 were reported for Vietnam. There were no exports reported during the week. 

Sorghum: Net sales of 38,700 MT for 2016/2017 resulted as increases for China (193,600 MT, including 114,000 MT switched from unknown destinations and decreases of 5,600 MT) were partially offset by reductions for unknown destinations (154,000 MT) and Mexico (1,000 MT). Exports of 108,000 MT were reported to China (106,600 MT), Indonesia (700 MT), and Mexico (600 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: Prices for DDGS across the U.S. were higher, led by Gulf prices that rose $5/ton for October delivery and $6/ton for November. New Orleans CIF prices followed Gulf FOB prices higher but to a lesser degree. Rail rates to either the PNW or California were up modestly (near $2/ton) while Texas prices were nearly unchanged (up $1/ton). Prices were stronger this week due to seasonal ethanol plant closures for maintenance. Most Midwest plants conduct brief closures for maintenance through the early fall which typically introduces a mild seasonal buoyancy to prices. This year’s DDGS prices appear to be following the typical pattern. Some merchandisers are expecting largely sideways price action as markets weigh opportunities to cover short sales with cheap corn versus fundamentals suggesting DDGS should price near 100 percent of corn value later this year. 

International DDGS prices firmed this week after international shipping concerns sent them lower last week. On average, prices to Southeast Asia were up $1/ton this week with South Korean prices rising $4/ton for October delivery. The forward curve for international shipments from October to December is relatively flat, indicating a largely sideways trading pattern is likely for the near term. 

Ethanol Comments: Ethanol margins are higher after production fell 23,000 barrels per day from last week, reaching only 0.981 million barrels per day. The production slowdown drew down ethanol stocks by 191,000 barrels to 20.016 million. Helping draw down stocks was a week-over-week increase in gasoline consumption of 244,000 barrels per day. Ethanol margins have been helped this week by higher gasoline prices that stem from Colonial Pipeline’s week-long closure a major pipeline in Alabama. 

The margin between the corn price and the value of ethanol and coproducts was higher this past week across the four reference markets (see below), with the largest gains noted in Iowa and South Dakota. Compared to this same week last year, the spread is $0.36-$0.78 higher in all reference markets. 

  • Illinois differential is $2.19 per bushel, in comparison to $2.04 the prior week and $1.68 a year ago.
  • Iowa differential is $2.23 per bushel, in comparison to $1.86 the prior week and $1.45 a year ago.
  • Nebraska differential is $1.81 per bushel, in comparison to $1.71 the prior week and $1.45 a year ago.
  • South Dakota differential is $2.20 per bushel, in comparison to $1.99 the prior week and $1.72 a year ago.

7. Country News

Canada: Corn for grain production will decrease by 2.9 percent from 2015 to 13 MMT. Declines in both planted area and yields are reported in both Quebec and Ontario. (StatsCanada) 

Japan: Fuel ethanol use, mostly imported, is rising and imports in 2017 are expected to be 64 percent above the government mandated use level of 500 million liters. Discussions to set the post-2017 use level begin next year and discussions about changing the sustainability requirement could begin this year. The country’s carbon and land use calculations related to ethanol currently limit imports to that produced using sugarcane. (USDA FAS GAIN) 

South Africa: White corn futures experienced their largest decline (-3.5 percent) in 14 months as 74,418 tons’ worth of imports from Mexico hit the market early this month. Grain SA estimates that one million tons of white corn will need to be imported, of which about one-third has entered thus far this year. (Bloomberg) 

United Kingdom: The number of pubs is declining, pressured downward by several factors (housing values, changes in consumption patterns, etc.) but one includes the 21 percent hike in the cost of barley due to rain damage on the Continent. (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: The Baltic Panamax Index has clawed its way back to 700, which is where it was in mid-August. So, it continues to look like the markets are mostly steaming in circles waiting for something sustainable to happen. 

Not surprisingly, physical freight markets have been slower to follow the full excitement of the index buyers. Global freight markets, in all sectors, have obviously been living in a state of financial hardship and emotional depression for the last couple of years and are desperately watching and hoping for any sign of a turnaround. Every market bounce produces a sense of optimism and renewed interest in new investments, which in turn becomes counterproductive. Ocean freight investors will have to learn to apply patience and enjoy small improvements before jumping in with new investments and vessel orders to obtain what they truly desire and need.

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 the Philippines.

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

10. Interest Rates

Interest Rates