Outlook: For most traditional commodity traders a hazardous market is one that swings from day to day based on dollar changes and not due to any fundamental driver with which they have experience. Supply-wise, the March USDA WASDE report is expected to make only a small reduction (-50 million bushels) in the 09/10 U.S. corn production estimate—but some think it could be increased since the re-survey raised yields in some states and areas with likely yield declines (the Dakotas) were left out of the re-survey due to the depth of winter conditions. A Dakota specific re-survey may be necessary later.
Next week’s USDA reports may indicate that export demand is down some based on quality issues and South American supplies, but even this seems uncertain given that corn exports are running 10 percent above last year and USDA predicts an eight percent increase. On price, some small amount of weather premium can justifiably be put into the U.S. corn price due to the cool and wet condition going into the spring planting season. Last year, the market worked itself up to a $1.00/bushel weather premium. The crop was still large enough despite the slow start, but there has also been an accompanying quality concern.
CBOT MARCH CORN FUTURES
Current Market Values:
U.S. WEATHER/CROP PROGRESS
U.S. Drought Monitor Weather Forecast: Through March 8, 2010 it looks relatively dry for most parts of the contiguous 48 states currently affected by dryness and drought. Generally 0.25 to locally 1.50 inches of precipitation is forecast from California eastward through Nevada, central and northern Arizona, Utah, southern Idaho, Wyoming, and Colorado, with the larger amounts expected in the coastal and Sierra Nevada regions of California and scattered higher elevations in the central Rockies. Elsewhere, only a few tenths of an inch is expected, if anything, including the dry areas in the Upper Midwest and the lower Ohio Valley.
From March 9-14, the odds favor above-normal precipitation in the West Coast, the Upper Midwest, and the lower Ohio Valley. In contrast, subnormal amounts appear more likely from central and southern Arizona eastward through the Big Bend region of Texas. Follow this link to view current U.S. and international weather patterns and the future outlook: Weather and Crop Bulletin.
U.S. EXPORT STATISTICS
Corn: Net sales of 761,400 MT for delivery in 2009/10 were up 90 percent from the previous week and unchanged from the prior 4-week average. Increases were reported for Japan (517,100 MT, including 153,200 MT switched from unknown destinations and decreases of 27,100 MT), Mexico (113,700 MT), Taiwan (63,500 MT, including 58,000 MT switched from unknown destinations and decreases of 400 MT), Venezuela (62,100 MT) South Korea (58,100 MT), Peru (43,100 MT, including 25,000 MT switched from unknown destinations and decreases of 4,900 MT), and the Dominican Republic (25,000 MT). Decreases were reported for unknown destinations (173,100 MT), Cuba (22,500 MT), and Colombia (7,000 MT). Net sales of 72,000 MT for delivery in 2010/11 were for unknown destinations (50,000 MT) and Japan (22,000 MT). Exports of 1,055,300 MT were down 15 percent from the previous week, but up 17 percent from the prior 4-week average. The primary destinations were Japan (380,400 MT), Taiwan (160,300 MT), Mexico (159,500 MT), South Korea (117,000 MT), Peru (45,100 MT), Venezuela (43,200 MT), and the Dominican Republic (27,900 MT).
Barley: There were no sales reported during the week. Exports of 1,100 MT were to Canada (800 MT) and Taiwan (300 MT).
Sorghum: Net sales of 36,500 MT were for Mexico (49,800 MT, including 25,000 MT switched from unknown destinations), Japan (11,200 MT), and Morocco (5,500 MT, including 5000 MT switched from unknown destinations). Decreases were reported for unknown destinations (30,000 MT). Exports of 92,800 MT were to Mexico (87,300 MT) and Morocco (5,500 MT).
FOB
DISTILLER'S DRIED GRAINS WITH SOLUBLES (DDGS)
DDGS prices are trending lower into the spring and summer months as they do seasonally relative to corn. However this year it appears to be compounded by the saturation of the domestic cattle markets and the increased global competition from feed wheat, canola meal and other feed energy sources emanating from the Black Sea region, Australia, Canada and Brazil. The last few years these competitors did not have such good weather and excess export production available
Ethanol margins are being squeezed, with ethanol prices dropping relative to corn and falling faster than domestic gasoline prices. These values should stimulate more demand for ethanol among the blenders and consumers. (Imagine the difference between gasoline in California at $3.50/gallon today and ethanol at $1.62 gallon?) Of course there are state and federal taxes that make up a big part of that difference but not that much. The last we witnessed this divergence between gasoline and ethanol, production dropped and then the price and demand for ethanol rallied back to near premium to gasoline (see chart below)
DDGS exports for 2009 were strong (better than we expected at 5.6 mmt calendar year), and we expect to see continued growth, assuming the continued funding for marketing the product overseas
Domestic: DDGS is reaching saturation in many markets but most evident are the dairy and cattle sectors where it is becoming a challenge to persuade farmers and their nutritionists to push the upper limits in the diets. There is still some room to feed more in poultry sectors and a bit more in swine but not much.
Exports: This week Canada has been actively buying in pretty good volume through June of this year. A pretty impressive chunk of business maybe about 20,000 mt so far that we know of this week (there could be more that we don’t know of). Canada is still in the top three importers for 2009.
The container lines and their general rate increases are causing some loss of export value to DDGS producers and their exporters. Needless to say, the global competition and the squeeze of container lines have caused much consternation in the trade. Prices at some container loading facilities (bids) are down about $7.00 mt.
The vomitoxin issue really has not been discussed much in the last few weeks. It appears that the increase in testing and management of corn in storage (segregating out the contaminated corn from the good) is helping reduce the possibility of it going into the ethanol plants. The economic disincentives of having vomitoxin in DDGS translates into heavy discounts or rejection of corn at the ethanol plants. There was some container trade reported to Thailand at $235.00 mt and Shanghai bids are around $230.00 mt.
COUNTRY NEWS
Argentina: The corn harvest has just begun and already yields are proving well above last year’s. The Buenos Aires Grain Exchange predicts 20.2 MMT, or more than 37 percent larger than last year’s crop, and the number could rise further. March will be a busy month for shipments due to the earlier February/March inverse, and most shipments are booked until June.
Uruguay: Vessels are loading new crop corn at Nueva Palmira, mainly bound for Algeria, Malaysia and Senegal, and with prices trading at a 10/15 cent discount to Argentina
Russia: The feed grain market was generally lower and there was only a small sale from intervention stocks.
Philippines: With a drought-induced domestic feed supply, feed millers plan to import 1.55 MMT of feed wheat and 500 KMT of corn. They could bring in an additional 1.0 MMT of feed wheat later.
Ukraine: Feed wheat and barley prices were pushed higher but corn even more so—up $3/MT since demand is strong and sellers are holding out, prices could head higher still.
OCEAN FREIGHT MARKET AND SPREADS
Recent Vessel Fixtures: 24,000 mt SBM U.S. East Coast –Brunswick to Poland 9-15 Mar $50.00 fio 5000/6000 - Dreyfus
OCEAN FREIGHT COMMENTS
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: We had a pretty dramatic uptick in world freight markets this week as the Baltic index continued its post holiday rally. The Panamax market seems to be leading the current charge. Once again all fingers point to China as the primary reason for market strength. We have also entered the start of the South American grain harvest activity. For the moment the supply of ships is not outweighing demand. With most of the new vessel deliveries scheduled for the last half of 2010, it will likely take a little time before the balance scales tip toward oversupply and weaker markets. It’s still a dangerous market for all concerned.
The market inverse has dissolved and the freight markets are fairly flat going out 60-90 days, with maybe even a slight carry
As a general freight market reference and indicator; below is a recent history of freight values for Cape size vessel shipments of Iron-Ore from Western Australia to China:
Four weeks ago: $8.25-$8.75
Three weeks ago: $9.15-$9.50
One week ago: $9.00-$9.25
This week $10.50- $11.00(Up $.75 - $1.00/mt from last week).
In dollar terms, the current spot and 30-day U.S. Gulf to Japan Panamax market is currently near $68.00/mt. The 30-day Panamax rates from the PNW to Japan are approximately $43.00/mt. The PNW/Gulf freight spread to Asia is approximately $25.00/tonne (.64/bushel for corn and .68/bushel for wheat and soybeans). The spreads however are narrowing and the PNW advantage is very small.
* Fob vessel Soybeans offers are thin from the PNW. It is therefore extremely difficult to determine an accurate soybean market spread to the US Gulf. PNW fobbing capacity for January and February is largely committed and therefore tight. Corn quality is a significant challenge for all vessel loaders.
INTEREST RATES
