Market Perspectives May 18, 2017

1. Chicago Board of Trade Market News

Week in Review

Outlook: Exports are essentially the only remaining piece of the 2016/17 corn supply and demand puzzle. With only 15 weeks remaining in the marketing year, ethanol production offers little opportunity to influence corn use, though USDA is generally expected to increase the corn for ethanol number in coming reports. Livestock feed demand is well known at this point and few surprises can exist between now and the new crop to substantially change the demand picture. The remaining demand variable, then, is exports. 

Exports have been performing exceptionally well this spring. This week’s report showed 27.8 million bushels in net sales and 60.8 million in exports. Both were above their respective targets of 10.2 and 43 million bushels that were needed to reach USDA’s projections. YTD corn exports are up 47 percent while YTD bookings (exports plus unshipped sales) are up 31 percent. After river flooding slowed exports two weeks ago, the return of normal weather has allowed for more barge activity and better exports. 

The U.S. export program is facing increasing challenges, however. FOB NOLA prices are now at parity with FOB Paranagua (Brazil) prices and are only a few cents below Argentina. Today’s news from Brazil that sent the real down 8 percent at one point will likely increase Brazilian farmer selling rates (though not as much as with soybeans) which will pressure U.S. export opportunities. The dollar’s week-long slide has more than helped the U.S. export program but it’s turnaround today may limit future export options. 

Funds have amassed their largest short position since March 2016 and today’s soybean selling likely added to this figure. Commercials are buying cheap corn aggressively, which is limiting further losses. U.S. basis levels are increasing, a sign that commercial buying is slowly taking hold. 

From a technical perspective, corn is range bound; trading between a ceiling of $3.75 and a floor of $3.64. All technical indicators are essentially neutral with moving average slopes near zero and the RSI almost perfectly neutral at 48. At this point, it will take a dramatic shift in old-crop fundamentals to break July corn out of its range bound malaise. It seems July corn is destined for more sideways price action, given that exports are the only remaining demand variable.

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: An extremely active weather pattern, featuring heavy rain, severe thunderstorms, and local flooding across the nation’s mid-section, will continue for the next few days. During the weekend, rainfall intensity will gradually diminish as showers shift into the eastern U.S. Five-day rainfall totals could reach 2 to 5 inches from the southern Plains into the upper Midwest, with 1 to 3 inches possible as far east as the Appalachians. Little or no rain will fall, however, along the Atlantic Seaboard. Significant precipitation, including high-elevation snow, will continue into Thursday across the Rockies and environs, but dry weather will prevail from southern California into the Desert Southwest. A period of very cool weather will trail the storminess, but warmth will return to the Pacific Coast by Friday and expand eastward during the weekend. 

The NWS 6- to 10-day outlook for May 23-27 calls for the likelihood of below-normal temperatures from the Plains to the western slopes of the Appalachians, while warmer-than-normal weather can be expected west of the Rockies and along the southern Atlantic Coast. Meanwhile, below-normal precipitation from the Pacific Northwest into the upper Midwest should contrast with wetter-than-normal weather across the southern and eastern U.S. 

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 705,300 MT for 2016/2017 were up noticeably from the previous week and 1 percent from the prior 4-week average. Increases were reported for Japan (152,800 MT, including 145,400 MT switched from unknown destinations and decreases of 200 MT), Mexico (113,000 MT, including decreases of 45,500 MT), Spain (96,600 MT, including 40,000 MT switched from unknown destinations), Nigeria (95,000 MT, including 50,000 MT switched from unknown destinations), and Taiwan (92,400 MT, including 65,000 MT switched from unknown destinations and decreases of 100 MT). Reductions were reported for unknown destinations (283,100 MT) and the Philippines (400 MT). For 2017/2018, net sales of 168,000 MT were reported primarily for unknown destinations (135,000 MT) and Japan (27,000 MT). Exports of 1,543,400 MT were up noticeably from the previous week and 31 percent from the prior 4-week average. The primary destinations were Mexico (323,600 MT), Japan (300,400 MT), South Korea (201,600 MT), Taiwan (151,800 MT), and Spain (96,600 MT). 

Optional Origin Sales: For 2016/2017, options were exercised to export 63,000 MT to South Korea from the United States. Decreases of 40,000 MT were reported for unknown destinations. The current optional origin outstanding balance for 2016/2017 of 191,000 MT is for unknown destinations (123,000 MT) and South Korea (68,000 MT). The current outstanding balance for 2017/2018 of 58,000 MT is for unknown destinations. 

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

Sorghum: Net sales of 56,200 MT for 2016/2017were up noticeably from the previous week and up 5 percent from the prior 4-week average. Increases were for China (104,400 MT, including 50,000 MT switched from unknown destinations), Mexico (1,000 MT), and Japan (900 MT), were partially offset by reductions for unknown destinations (50,000 MT). Exports of 83,800 MT were down 55 percent from the previous week and 21 percent from the prior 4-week average. The destinations were China (51,400 MT), Japan (20,900 MT), and Mexico (11,500 MT). 

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: DDGS prices were steady this week, and influencing markets including corn and soybean meal also saw little price action. Kansas City soybean meal prices were equal to last week’s prices while cash corn prices ticked up a penny. Consequently, DDGS found little fundamental support or pressure and traded sideways. 

DDGS FOB ethanol plant prices increased $1/short ton this week and are priced at 85 percent of cash corn and 34 percent of Kansas City soybean meal. The slight increase in DDGS prices eroded the per-protein unit cost advantage of DDGS versus soybean meal. Currently, the pro-protein unit cost of DDGS is $2.29 less than soybean meal.

On the export market, prices for DDGS Barge CIF NOLA increased $2.50/MT this week as better river navigation conditions increased barge rates. Prices for DDGS FOB Gulf fell $1/MT as export demand remains weak and below market offers. International buyers are claiming destination pricing is offered at below-replacement prices but merchandisers are unable to confirm with any U.S. sources. 

Merchandisers are reporting an average price increase of $4/MT for 40-foot containers destined for Southeast Asia this week. Prices for DDGS destined for Japan increased significantly while most destinations saw increases between $2-4/MT. Merchandisers are reporting offers are increasing and there is a carry in the market for both DDGS and freight. 

7. Country News

Brazil: After ruling out imposing tariffs on ethanol imports from the U.S. due to concerns about retaliation, the government will require that importers fulfill the same obligation (Resolution 67/2011) as domestic suppliers by maintaining reserve stocks equivalent to 8 percent of the prior year’s sales. (Reuters) 

China: About 74 percent of the 453 KMT of 2011-12 corn offered for sale out of government stocks was purchased on May 11 at an average price of 1,331 yuan/ton ($193.17/MT). Almost 5 MMT of state owned corn will be offered for sale this week with 80 percent from the 2013 harvest and 20 percent from 2011-12. Government sales are pushing the corn price lower on the Dalian Commodity Exchange. Meanwhile, provincial support in Heilongjiang and Liaoning will shift higher subsidies to soybeans and away from corn in 2017. (Bloomberg) 

EU: Consultancy Strategie Grains forecasts EU 2017 barley production 1.7 MMT lower to 59.6 MMT, and 2017 maize production lower by 0.3 MMT to 60.1 MMT. (Reuters) The German Agricultural Cooperative Companies Group (DRV) reduced the country’s corn production estimate by 17 percent to 3.74 MT and the barley output was cut by 2.75 percent to 10.6 MMT. (Bloomberg) 

Kenya: After 36 KMT of reserve maize stocks were released to grain millers, the National Cereals and Produce Board said that just 4,500 MT of reserves were left, or less than a day’s worth of the country’s consumption amount. The maize was sold to millers at $244/MT, or half the current market price. (Bloomberg) 

Malaysia: The competitive price of DDGS will spur further imports, possibly up to 80 KMT during 2017-18. (USDA/FAS) 

Mexico: Sagarpa says that Mexico will import 3-5 MMT or 20-35 percent of its annual corn needs from Brazil in the medium to long term. (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: I did not find any big news to report this week. Global Dry-Bulk markets were lower for the week, and I believe the main cause was simple market repositioning. As mentioned previously, Baltic Traders got a bit ahead of themselves with the over-zealous buying throughout the past month. Now reality is setting in and some are taking their lumps. The Baltic Indices have retreated back to levels traded about 12 weeks ago. So, we are still in a market that is searching for cargo to offset the continuing vessel oversupply.

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