Market Perspectives September 21, 2017

1. Chicago Board of Trade Market News

Week in Review

Outlook: December Corn futures have shown little excitement following last week’s WASDE report. There has been little news to support either bullish or bearish arguments, though the bears seem to be winning the market direction battle. The contract has remained under bearish technical and fundamental pressure but seasonal lows are typically scored during September. The most important numbers traders can receive now are yield results from U.S. combines. 

The latest USDA report noted 34 percent of U.S. corn is rated “mature,” behind the typical development pace. USDA also reported 7 percent of the crop is harvested, behind the typical pace of 11 percent. Good, warmer-than-average weather across much of the Corn Belt this week will aid in maturation and drying. 

Corn exports have been lackluster to start the year. YTD exports total 55.8 million bushels so far, half of the 109 million bu. that had been exported at this time last year. Still, it’s too early in the crop year to worry about the export pace, especially with the South American crop competing against U.S. exports. 

December corn futures remain under bearish technical pressure, lodged in a downtrend and unable to break above their 20-day moving average. Still, the contract is only 10 cents above its life-of-contract low ($3.44 ¼, reached on August 31), which many traders expect will be this year’s seasonal low. As such, the contract is largely caught in a choppy, sideways trading range. Should the market breach the $3.44 mark, it would signal resumption of the long-term down trend and usher in a swift round of selling. Conversely, a move higher would meet resistance at $3.62 and would likely be followed by a slow grind higher.

2. CBOT Corn Futures

CBOT December 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 couple of days, a storm system and its attendant cold front will push eastward toward a ridge of high pressure parked over the eastern U.S. Initially, the front will make little progress, resulting in an axis of heavy rain stretching from the upper Midwest to the southern High Plains. Five-day rainfall totals could reach 2 to 4 inches or more along that axis, while isolated 1- to 3-inch amounts can be expected from the Pacific Northwest to the northern Rockies. Early next week, a warming trend will commence in the Far West, while cool conditions will shift eastward across the Plains. Late-season warmth and general dryness will continue, however, in the East. 

The NWS 6- to 10-day outlook for September 26-30 calls for the likelihood of below-normal temperatures across large sections of the Rockies and Plains, while warmer-than-normal weather will prevail in the Pacific Coast States and across the eastern one-third of the U.S. Meanwhile, below-normal rainfall in the Southeast and Northwest should contrast with wetter-than-normal conditions across New England, the upper Great Lakes region, and southern portions of the Rockies and 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 526,900 MT for 2017/2018 were reported for Mexico (264,100 MT), Japan (111,600 MT, including 49,000 MT switched from unknown destinations), Colombia (73,000 MT, including 30,500 MT switched from unknown destinations and decreases of 500 MT), Costa Rica (30,400 MT, including 26,200 MT switched from unknown destinations), and Peru (24,100 MT). Reductions were reported for unknown destinations (43,900 MT) and the French West Indies (6,500 MT). Exports of 703,700 MT were primarily to Mexico (366,100 MT), Peru (113,600 MT), Japan (72,100 MT), Colombia (42,600 MT), and Costa Rica (30,000 MT). 

Optional Origin Sales: For 2017/2018, optional origin outstanding balance of 168,000 MT, all unknown destinations. 

Barley: No net sales were reported for the week. Exports of 700 MT were reported to Japan. 

Sorghum: Net sales of 51,900 MT for 2017/2018 resulted as increases for China (117,900 MT, including 66,000 MT switched from unknown destinations and decreases of 1,100 MT) were partially offset by reductions for unknown destinations (66,000 MT). Exports of 72,200 MT were reported to China (70,600 MT) and Mexico (1,700 MT). 

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: DDGS prices are unchanged from last week, with lack of news limiting the market’s activity. Merchandisers are reporting broken locks on the Ohio river and low water in the Mississippi are forcing DDGS off the water and into rail cars. Accordingly, rail rates are rising quickly for regions upriver. DDGS prices for product delivered via rail to the PNW, California, or Laredo, TX are $5-6/MT higher this week. 

Merchandisers noted some buying interest as DDGS came under pressure from the corn market’s WASDE-induced turn lower, but limited near-term supplies are supporting pricing. Ethanol plants are still in the seasonal fall maintenance schedule which is keeping supplies low. 

On the international front, higher ocean freight rates are pushing the threat of a general rate increase (GRI) from October to November. Traders are reporting current pricing is limiting demand for forward tonnage. Prices for 40-foot containers to Southeast Asia averaged $198.5/MT this week, a gain of $2/MT higher, with prices for product sent to Japan and Shanghai, China leading the way. 

FOB ethanol plant prices are steady with last week and are priced at 103 percent of cash corn values. This valuation is up 5 percent from the prior week as corn prices have weakened. Strength in the soybean meal market, however, has left DDGS more competitive against that feed ingredient and the ethanol co-product is valued at 38 percent of soybean meal. DDGS retain a $1.66 per-protein unit cost advantage against soybean meal, down from last week.

7. Country News

China: (Bloomberg and Reuters)Robust demand coupled with lower production is pushing corn prices higher. Additionally, with the government no longer propping up prices through purchases, farmers with storage will hold off on selling and wait for higher prices. This has all pushed cash corn to 1,720 yuan ($260.97)/MT at the port of Liaoning. Meanwhile, to expedite the offloading of government stocks, auctions of 2013 crop corn have been expanded to every weekday instead of just on Thursdays. 

Starch: Wei Xuming, secretary general of the country’s starch association, says production capacity is expanding after the government lifted restrictions. Capacity will expand by 39.3 MMT, with 20.7 MMT already under construction, including fuel ethanol, and will be operating by end-2018 mostly in the northeast. 

An increase in the export tax rebate has helped increase exports of corn products like starch (+177 percent y/y in July) and sweetener (+15.4 percent y/y in July). The corn refining industry consumed 61 MMT of corn in 2015-16 and the subsidy (150-200 yuan/ton) to processors may next be offered to refiners in the northeast region. 

Kenya: Drought has curbed the output of maize, barley and other crops at the same time the economy has slowed and inflation has accelerated. (Reuters) 

Middle East: Tenders include Jordan seeking 100 KMT of feed barley and Tunisia tendering for 50 KMT of feed barley. (Reuters) Meanwhile, Saudi Arabia will build a 1,000-mile-long “Land Bridge” railroad line from the Red Sea to the Persian Gulf that will also help lift barley, maize and other products out of the Busaita production region. (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: It is a bit difficult to pinpoint dry-bulk ocean freight rates today. Technically the Baltic Indices still look bullish and seem to want to move higher, but the physical market appears to be losing some steam and is showing sign of fatigue. It has been a good run-up over the past two months and it is always hard for any market to keep moving in just one direction for very long. Though China iron ore and coal imports should remain steady and supply market support, and the North American fall harvest is right in front of us, I do see vessel owners starting to pull back on vessel scrapping and even sneak in some new build vessel orders. 

This is not a strategy that will support long-term profitability for vessel owners and operators. They need to avoid killing the golden goose. But, for this week markets seem to be mostly steady and looking for new input. Be advised that the port of Brunswick, Georgia in the United States was damaged in the last hurricane and the timeline for repairs to the facility – and subsequent resumption of grain loading – is unknown and questionable.

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 Thailand.

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

10. Interest Rates

Interest Rates