Market Perspectives May 11, 2017

1. Chicago Board of Trade Market News

Week in Review

Outlook: Corn’s headline number from the May WASDE was a 13 percent reduction in global ending stocks. The USDA pegged 2017/18 ending stocks at 195.3 MMT, below pre-report expectations. Likely reductions in Chinese and U.S. production cut the world production figure by 3 percent to 1,033 MMT. Global consumption for 2017/18 was unchanged at 1,214 MMT. 

The only change to the 2016/17 U.S. balance sheet was a 25 million bushel increased in Food, Seed, and Industrial (FSI) use, which drove a commensurate decrease in U.S. ending stocks. The USDA did not increase U.S. exports or ethanol use like many analysts had expected. The lack of action leaves open the possibility for adjustments in these categories in June, which will give USDA time to evaluate the competitive pressure of Brazil’s corn exports. If ethanol production continues at its average pace for this year, USDA could increase corn for ethanol use by 100 million bushels in later reports. 

The USDA projected U.S. production will reach 14.065 billion bushels of corn from the 2017/18 crop. A projected yield of 170.7 bushels per acre and 82.4 million harvested acres created the production figure. If realized, this year’s production would be a 7 percent reduction from the record set in 2016/17. The USDA increased FSI and ethanol consumption by 80 million and 50 million bushels, respectively. Smaller U.S. supplies and increased global competition for exports reduced the 2017/18 U.S. export forecast by 350 million bushels from the prior year. 

The USDA predicted 2.11 billion bushels in U.S. ending stocks for 2017/18, down 1 percent from the current marketing year. The figure implies an ending stocks-to-use ratio of 14.8 percent, down from 2016/17. Because of the ending stocks figure, the USDA did not change the U.S. average farm price for corn, leaving it at $3.40 per bushel. 

Technical indicators are giving a neutral outlook for July corn. The RSI and stochastic oscillators are decidedly directionless while moving average lines are converging in a jumbled mess. Some upward price direction exists above the contract’s major support at $3.61, but it’s hard to call this a trendline. The case for a downtrend, however, is more easily made when looking back toward the mid-February highs. The market will continue to trade the weather forecasts for now, leaving a choppy trading pattern for the near future. 

2. CBOT Corn Futures

CBOT July Corn Futures

CBOT Corn Futures Graph

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

U.S. Crop Planting Progress

U.S. Drought Monitor Weather Forecast: Over the next 5-7 days, much of the central Plains, Midwest, and Northeast are targeted for rain, with the greatest amounts over the Mid-Atlantic and New England. From southern Georgia into Florida, below-normal precipitation is expected while much of the Southwest remains dry. The Pacific Northwest and northern Rocky Mountains are also expected to receive precipitation. Temperatures during this time will be cooler than normal over the West while much of the Plains, Midwest, and Southeast will be 3-6 degrees above normal. Cooler than normal temperatures are expected over the Northeast with above-normal precipitation.

The 6-10 day outlooks show that the probabilities of below-normal temperatures are greatest over the West, while Alaska and the East are dominated by above-normal chances of warmer than normal temperatures. The greatest chances of below-normal precipitation are along the eastern seaboard and Southwest while above-normal precipitation chances are greatest over the Great Basin, northern Rocky Mountains, and into the High Plains. 

Follow this link to view current U.S. and international weather patterns and 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 277,700 MT for 2016/2017--a marketing-year low--were down 64 percent from the previous week and 66 percent from the prior 4-week average. Increases were reported for Mexico (109,400 MT, including decreases of 3,900 MT), Japan (89,500 MT, including 42,500 MT switched from unknown destinations and decreases of 53,600 MT), Venezuela (30,000 MT), Jordan (26,300 MT, including 25,000 MT switched from unknown destinations), and Ireland (19,600 MT, switched from unknown destinations). Reductions were reported for unknown destinations (76,800 MT), Guatemala (12,600 MT), South Korea (5,200 MT), and El Salvador (700 MT). 

For 2017/2018, net sales reductions of 55,100 MT resulted as increases for Nicaragua (16,400 MT), were more than offset by reductions for Japan (71,500 MT). Exports of 722,900 MT were down 41 percent from the previous week and 43 percent from the prior 4-week average. The primary destinations were Mexico (302,900 MT), Japan (198,200 MT), South Korea (61,300 MT), Canada (26,700 MT), and Jordan (26,300 MT). 

Optional Origin Sales: The current optional origin outstanding balance for 2016/2017 of 294,000 MT is for unknown destinations (163,000 MT) and South Korea (131,000 MT). The current outstanding balance for 2017/2018 of 58,000 MT is for unknown destinations. 

Barley: Barley: No net sales were reported for the week. Exports of 100 MT were reported to South Korea. 

Sorghum: Net sales of 2,000 MT for 2016/2017 resulted as increases for China (110,300 MT, including 106,000 MT switched from unknown destinations and decreases of 500 MT) and Japan (900 MT), were partially offset by reductions for unknown destinations (106,000 MT) and Mexico (3,200 MT). Exports of 187,300 MT were up noticeably from the previous week and from the prior 4-week average. The destinations were China (160,800 MT), Mexico (15,600 MT), and Japan (10,900 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: DDGS prices worked their way higher this week as tighter ethanol margins and transportation carriers’ new alliances created pricing opportunities. Traders also booked some tonnage forward as a hedge against any possible summer marketing slowdown. Improved marketing opportunities came from corn futures’ price bump but lack of sales-driven demand limited gains. 

Merchandisers are reporting quiet export demand with bids $5-8/MT below asking prices. Prices for deferred delivery months are rising, though it is unclear whether this is demand driven or merchandisers’ effort to drive purchases in the nearby month. Alternatively, input pricing may require higher asking prices to manage ethanol production margins. 

DDGS’ value relative to corn is still extremely low by historic standards. The ratio of cash corn and FOB ethanol plant DDGS prices is 84 percent this week while the ratio of FOB NOLA prices equal 105 percent. The FOB Gulf ratio has been below 110 percent for the entirety of 2017, whereas it averaged 114 percent during 2016. Compared to soybean meal, FOB ethanol plants DDGS have a $2.29 per protein unit cost advantage this week and a $1.49 advantage FOB NOLA. Judged by the relative value of competing feedstuffs, DDGS appear to have potential to continue moving higher.

7. Country News

Brazil: The Chamber of Foreign Trade (CAMEX) has delayed until next month and depending on further analysis the decision on whether to impose duties on imports of ethanol from the U.S. Brazilian producer groups have asked the government to impose duties of between 16 and 20 percent on the imports. (Reuters) 

China: CNGOIC says that Chinese farmers will plant 35.84 million hectares of corn this year, which is down 2.5 percent from a year ago. Production is expected to be 211.5 MMT, a 3.7 percent reduction from last year. The corn growing province of Liaoning has only planted 44.6 percent of its corn versus 66.4 percent this time last year because of drought. 

Meng Shengda of Shengda Futures describes corn sales this past week as bullish and exceeding expectations. He said it is based on strong demand and smaller stocks than expected. Prices received at the auction were higher than expected. The government will sell another 860 KMT from 2014 corn stocks at the next auction.

India: Prime Minister Narendra Modi has asked officials to expedite the establishment of next generation bioethanol refineries utilizing agricultural residues. He wants an emphasis on ethanol blending in gasoline. (Deccan Heralnd) 

Kenya: Jaindi Kisero says the whole grain marketing system must be overhauled and that the food supply chains are “primitive and exploitative” [sic]. There are multiple price regimes – tariff-free imports, tariff-paid imports, strategic reserve – with players gaming the system to maximum profit. (Daily Nation/Syndigate)

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: Were Global Dry-Bulk markets up or are down again this week? The answer is a little bit of both. For the most part it was a quiet week without much featured. The Capesize and Panamax vessels had difficulty holding the line on rates but the Supramax and Handymax, in relative terms, did a bit better. Vessel markets are mostly trying to determine which way to go. Cargo demand has not picked up much but vessel owners are reluctant to sell at lower numbers. While North American freight markets were a sideways affair this week, South American rates slipped back with vessel supply down there overbalancing anticipated cargo demand. The Baltic Index forward curve for all vessel sizes does not project a bullish outlook. 

On the interior logistics situation, barge navigation on the lower Mississippi River has reopened but it will take a bit more than a week for empty barges to get up north and for service to get back to normal levels.

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 YTD 2017 versus 2016 annual totals for container shipments to Vietnam. 

Container Shipments 1
Container Shipments 2
Freight Chart 1
Freight Chart 2
Freight Chart 3

10. Interest Rates

Interest Rates