Market Perspectives December 21, 2012
- Published on Friday, 28 December 2012 15:48
CHICAGO BOARD OF TRADE MARKET NEWS
Outlook: Corn users have been alerted for the past few weeks that there could be a potential sell-off in corn futures going into year-end, and they were encouraged to consider developing a pricing strategy. Of course, there are multiple facets that must be considered when seeking to secure positive returns, and desirable conditions may not happen simultaneously. For example, the recent decline in ethanol prices certainly has been undesirable for ethanol producers who wish to lock in positive margins. However, it is also noteworthy that there is a seasonal tendency for both gasoline and beef prices to increase going into the spring.
Taking advantage of various opportunities that are presented at different will times presumably will require some true trading talent. This season, consideration of future influences is particularly important because corn futures are likely to experience heightened volatility during the next four or five months. Key market factors will be discussed more after the New Year. In the interim, we wish you season’s greetings as you focus upon the most important things in life.
CBOT DECEMBER CORN FUTURES
Current Market Values:
U.S. WEATHER/CROP PROGRESS
U.S. Drought Monitor Weather Forecast: Over the next five days (December 19-23) the weather pattern should stay active, with multiple storm systems impacting the country. A vigorous system will be moving out of the Plains and into the Midwest and Great Lakes region and finally into New England over the next five days. Precipitation amounts are expected to be in the 0.50-2.40 inches range, with the greatest amounts expected over New England. A second system will be coming into the Pacific Northwest with projected precipitation amounts of up to 9.00 inches in southern Oregon and northern California along the coast. Temperatures during this time look to be above normal over much of the eastern half of the country and below normal along the West Coast. Extremes will range from 9 degrees Fahrenheit above normal in Oklahoma and Arkansas to 6 degrees Fahrenheit below normal in southern Oregon.
The CPC six- to 10-day forecast (December 24-28) is showing a good chance for below-normal temperatures over much of the United States, from the northern Rocky Mountains all the way to the southeast. The coldest temperatures are expected over the Central Plains to Montana. The best chances for temperatures above normal are in the northern Great Lakes into New England. The precipitation pattern stays active, but much of the country will have good chances of above normal precipitation, with the best chances over the southeast and Great Basin. Follow this link to view current U.S. and international weather patterns and the future outlook: Weather and Crop Bulletin
U.S. EXPORTS STATISTICS
Corn: Net sales of 114,400 MT for the 2012/13 marketing year were down 56 percent from the previous week and 65 percent from the prior four-week average. Increases reported for China (171,700 MT, including 180,000 MT switched from unknown destinations and decreases of 8,300 MT), Japan (70,700 MT, including 27,200 MT switched from unknown destinations and decreases of 3,200 MT), Saudi Arabia (66,300 MT, including 65,000 MT switched from unknown destinations), Venezuela (30,000 MT), Colombia (13,200 MT) and Mexico (12,400 MT) were partially offset by decreases for unknown destinations (272,200 MT). Net sales of 5,800 MT for delivery in the 2013/14 marketing year were for Japan. Exports of 433,400 MT were up 68 percent from the previous week and 32 percent for the prior four-week average. The primary destinations were China (171,700 MT), Japan (113,100 MT), Saudi Arabia (66,300 MT), Mexico (47,300 MT), Jamaica (20,100 MT) and Nicaragua (7,400 MT). Optional Origin Sales: For MY 2012/13, outstanding optional origin sales total 213,200 MT, and are for South Korea (163,200 MT), Israel (20,000 MT), and Mexico (30,000 MT).
Barley: There were no sales or exports during the week. Exports of 700 MT were reported to Japan.
Sorghum: There were no sales or exports during the week. Exports of 400 MT were reported to Mexico.
DISTILLERS DRIED GRAINS WITH SOLUBLES (DDGS)
DDGS Comments:Domestic demand remains consistently strong and merchandisers report that DDGS to corn has reached values of 98-105 percent. For example, there was a trade reported of 5,000-8,000 MT for Elwood, Illinois around $323/MT. DDGS merchandisers desire to market more aggressively and would like to offer an extension of forward contracts, but they are in a difficult situation because poor ethanol margins may cause some plants to slow production or shut down if conditions do not improve soon.
Internationally, Japan was in the market for several thousand metric tons. Tokyo was around $376-379/MT for 1,500 MT, Moji, Japan was around $400/MT for 500 MT and Ho Chi Minh City in Vietnam was around $391/MT for another 500 MT. An increasingly time-sensitive issue is the prospect that China’s Entry-Exit Inspection and Quarantine Administration (CIQ) and China Customs may intend to implement the registration regulation for U.S. DDGS in early 2013. Currently, there is a firm stance that all shipments loaded after the first of the year will need to provide a Registration Certificate. That position seems to be making some Chinese buyers hesitant to make purchases until more details are worked out. USGC will keep you updated.
Ethanol Comments: This has been a painful week with substantial setbacks in ethanol margins. It is hard to consider locking in corn prices when future plant operations are called into question. One positive note is that the Energy Information Administration (EIA) made a rather optimistic prediction that ethanol production will return to pre-drought levels by the second half of 2013. However, that prediction does not offset the current barrage of negative news relating to burdensome stocks, Brazilian imports, EU tariffs, Florida legislation to repeal the state’s Renewable Fuel Standard (RFS) act and so on. Each of those subjects is worthy of comment, but any negative discussion this week somehow seems disrespectful so close to the Christmas holiday. Consequently, such discussions will be delayed until after the New Year, and instead a positive Christmas wish is sent out to the industry. Merry Christmas.
Argentina: The Argentine Ministry of Agriculture announced that Chinese authorities have given the green light for the first two containers of Argentine corn ever to be imported into the country, according to Reuters. The corn had been held up for the past couple of weeks due to concerns that unapproved GMO strains had been discovered.
China: China is likely to have a lower-than-expected corn harvest this year, and will likely have to dig into its stocks to meet increased demand, reports Reuters. This development can be attributed to a spate of typhoons and pest issues in China’s main northeast corn belt. Corn production is now expected to grow by 5.1 MMT as opposed to the earlier forecast of 15.34 MMT. Further, recent spikes in wheat prices are encouraging animal feed mills to substitute corn for wheat.
Additionally, Chinese investors have raised complaints that Australia’s foreign investment rules have dampened their confidence for investing in grazing land as Australia increasingly tries to attract foreign (especially Chinese) investment into its underdeveloped northern Outback.
Ukraine: Ukrainian farmers likely will reduce their corn acreage in 2013 due to the fears of a summer drought, and corn being unneeded as a replacement for frost-damaged crops due to a mild winter. Last year Ukraine increased its corn acreage by 30 percent to 4.7 million hectares to replace 1 million hectares of winter wheat and barley lost to frost. Despite the increased acreage, the summer heat and drought cut the yield to 4.69 MT/hectare, which was down from a record 6.40 MT/hectare in 2011.
OCEAN FREIGHT MARKETS AND SPREADS
OCEAN FREIGHT COMMENTS
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting:
It is not going to be a merry Christmas for vessel owners. All of the previous brief market attempts to rally have failed and the financial prospects for 2013 do not look favorable unless you are a charterer of vessels. Further shipping company consolidations are forecast in the tanker, container and dry bulk sectors. It will likely be 2014 before vessel owners can expect to get any relief. For those who charter vessels, the outlook is favorable for another year. The difficult challenge for charterers is how to protect against higher rates in 2014/15 and forward.
The Baltic indices again seem to be moving faster than the physical market. Physical rates are lower this week, but not to the extent that the change in the Baltic indices would indicate.
Today and tomorrow are voting days for the International Longshore and Warehouse Union (ILWU) in the PNW. They will decide if they wish to accept the “last and best” offer from West Coast grain elevator companies. A rejection will almost certainly lead to a lock-out or work stoppage. So, we continue to go forward day to day expecting that anything can happen at any time. Best be ready!
Below is a recent history of freight values for Capesize vessels of iron ore from Western Australia to China:
The charts below represent Jan.-Dec. 2010 and 2011, annual totals versus Jan.-Dec. year-to-date (2012) container shipments for CHina.