1. Chicago Board of Trade Market News
Outlook: The U.S. corn harvest started the week at 15 percent complete and is expected to be a fifth of the way done by its end, both of which are behind average. The cause is an early season prediction of a dry, hot end to the U.S. growing season has instead brought the opposite – heavy rains that will affect crop quality if they persist. Still, at this juncture, the crop remains rated at 74 percent good/excellent. The yield potential is rising in some states and falling in others, but most expect USDA to lower the overall yield in its next report.
U.S. corn export sales this week were overall neutral but next week’s report will reflect a milestone with the sale of 1.577 MMT (two-thirds old crop) of corn to Mexico. That amounts to the fourth highest daily sale on record and the largest ever single day sale to Mexico. Corn sales to Mexico this year are on track to be larger and that market has replaced Japan as the largest one for U.S. corn. Overall, corn export lifts are running 51 percent ahead of last year and this is pushing freight charges higher.
The International Grains Council on Thursday reduced its forecast for the 2016/17 world corn crop by 3 MMT (1/3 old crop), mostly due to a downward assessment of China’s crop.
Here in the gut slot of the U.S. harvest, corn cannot break above $3.46 nor below $3.14, and with the soybean/corn ratio approaching 3:1, soybean planting is favored in the spring.
Tomorrow USDA will release its quarterly grain stocks estimate, and its annual report on small grains.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: During the next few days, a strong upper level low pressure system stalls out over the Ohio Valley providing relief to the Mid-Atlantic region. As much as 3-6 inches of rain is forecasted, so flooding and flash flooding is possible in some areas. Some of the areas that were placed in D0 status this USDM week may see several inches of rain from this event. Please note that the Drought Monitor depicts conditions valid through Tuesday morning, 8 a.m., EDT (12 UTC); any of the recent locally heavy rain which fell after Tuesday morning (September 27) will be incorporated into next week’s drought assessment. Meanwhile, the rest of the CONUS will be relatively quiet. For average temperatures during the next few days, the largest positive anomalies are forecasted to occur in the West, Northwest, and High Plains. The largest negative anomalies should be concentrated in the Midwest and are forecasted to gradually slide southward. For the second half of the next USDM period, much cooler than normal temperatures return to the West Coast, while the warmer than normal temperatures are confined to much of the area east of the Rockies. The 6-10 day outlooks from CPC show an increased probability of warmer than normal temperatures for the eastern half of the country and the western half has the best chance of cooler than normal temperatures. There is an increased probability that above normal precipitation will fall in the Northern Rockies and High Plains while the probability is best for below normal precipitation to occur in the 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
Corn: Net sales of 575,000 metric tons were reported for 2016/2017. The primary destinations were Mexico (286,200 MT, including 33,000 MT switched from unknown destinations and decreases of 1,900 MT), Colombia (230,300 MT, including 87,500 MT switched from unknown destinations and decreases of 19,500 MT), South Korea (68,200 MT, including 65,000 MT switched from unknown destinations), the Dominican Republic (48,400 MT, including 15,000 MT switched from unknown destinations and decreases of 900 MT), and Peru (46,900 MT, including 34,000 MT switched from unknown destinations, and decreases of 2,900 MT). Reductions were for unknown destinations (364,900 MT) and the French West Indies (5,600 MT). Exports of 1,261,500 MT were reported to Mexico (366,500 MT), Japan (283,400 MT), Colombia (139,400 MT), South Korea (127,400 MT), Peru (64,900 MT), Morocco (51,100 MT), and Bangladesh (43,900 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 700 MT for 2016/2017 were reported for Vietnam (500 MT) and Japan (200 MT). Exports of 100 MT were reported to Taiwan.
Sorghum: Net sales of 227,300 MT for 2016/2017 were reported for China (169,300 MT, including 58,000 MT switched from unknown destinations and decreases of 700 MT), unknown destinations (58,000 MT), and Indonesia (100 MT). Exports of 119,400 MT were reported to China (119,300 MT), South Korea (100 MT), and Indonesia (100 MT).
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Container values fell this past week with the sharpest decline for containers headed to Japan. Some sources in the trade believe that U.S. DDGS prices will still be on par with domestic Chinese product after the combined CVD/AD is applied. This will make customer preference regarding quality a stronger variable. To the degree that China’s DDGS imports decline, buyers in other destinations will see this as an opportunity – including in Vietnam and Korea among other destinations. Indeed, there is likely to be a bottom in the near-term given that market demand for product historically increases toward the end of the calendar year and in the early months of a new one.
Ethanol Comments: U.S. ethanol production was up 8,000 barrels per day this past week, incentivized by some of the best margins in two years. However, stocks grew by 600,000 barrels to reach 20.6 million barrels, up 10 percent from a year ago.
China’s imports of ethanol continue to be sluggish relative to past volumes. The margin between the corn price and the value of ethanol and coproducts across the four reference markets is detailed below.
- Illinois differential is $2.26 per bushel, in comparison to $2.19 the prior week and $1.58 a year ago.
- Iowa differential is $2.05 per bushel, in comparison to $2.23 the prior week and $1.58 a year ago.
- Nebraska differential is $1.82 per bushel, in comparison to $1.81 the prior week and $1.64 a year ago.
- South Dakota differential is $2.21 per bushel, in comparison to $2.20 the prior week and $1.86 a year ago.
7. Country News
Bangladesh: Corn production has gone from 65,000 MT in 1997-98 to 2.75 MMT in 2015-16, making it now the second most important cereal crop in the country after rice. Profit levels are higher for corn than for rice, and the crop requires less water. (WPI)
China: Sinograin sold a relatively small 76,353 MT of corn reserves on September 27 at an average price of 1,678 yuan/MT ($251.76). However, CNGOI says that China has sold 41.5 MMT of corn out of state reserves thus far this year, which is 137 percent more than was sold during all of last year. The average Chinese corn price ($261.66/MT) continues to drop. (Bloomberg)
EU: The crop monitoring service has cut its yield forecast for EU maize for the second month is a row, putting it below the five-year average. (Reuters)
Korea: The Korean Feed Association is tendering for 130,000 MT of corn, the Korean Corn Processing Industry Association tendered for 55,000 MY of corn, and giant Korean feed maker NOFI is separately tendering for up to 138,000 MT of corn. (Reuters)
Russia: The Ministry of Agriculture intends to lift the current 102-ruble excise tax ($1.62/liter ≈ 90 percent cost of production) on domestic fuel ethanol by the end of the year. Listing the tax is expected to increase production by up to 670 million gallons per year. (Ethanol Producer Magazine)
South Africa: The Crop Estimates Committee raised its forecast for corn production to 5.54 MMT, which is 3.3 percent above the previous month. Recent rains have helped as the local price has now dropped by 22 percent. Corn imports of 3.8 MMT are still expected, of which a third will be white corn.
Tunisia: The state grains agency tendered for the purchase of 25,000 MT of feed barley with the lowest offer at $167/MT C&F. (Reuters)
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: I do not see anything very new or exciting in global ocean freight markets this week. We do continue to see the Baltic Index traders trying to move the indices up, but physical markets are just not following. Next week China will be on holiday and I imagine that things will get even quieter.
Capesize vessels are currently earning about $10,250/day in the spot market and are bid at $11,300 for October. Panamax vessels are getting $5,300/day in the spot market but can find bids at $6,600 for October. So, there remains some optimism in the thinking that things will improve some as we get into the gut slot of the North American grain harvest. However, these daily hire rates are not all that much of an improvement over what has been paid for the last number of months. The freight markets are not out of the dog house yet.
The charts below represent year-to-date 2016 versus January-December 2015 annual totals for container shipments to Thailand.