2011 Market Perspectives
- Category: 2011 Market Perspectives
- Published on Friday, 18 March 2011 05:00
CHICAGO BOARD OF TRADE MARKET NEWS
Outlook: The United Stated Department of Agriculture issued two important reports Thursday morning. The Perspective Plantings report was most important because it stated what United States farmers intended to plant. Total planted acreage is estimated to increase 8.4 million acres. Corn area is forecast to increase 4 million acres above last year, to 92.18 million acres. Sorghum is expected to increase 241,000 and barley up 80,000 acres. Total wheat area is also up a substantial 4.4 million acres. (Total soybean's 76.7 million is 795, 000 acres below last year.).
The reported corn acreage of 92.18 is slightly above the average trade guess of 91.84 million acres and is not bullish. However, USDA’s Quarterly Grain Stocks Report is considered bullish because stocks are smaller than market expectations. The average trade guess was that total U.S. corn stocks on March 1 would be 6,690 million bushels and USDA’s estimated number is 6,523 – a bullish surprise. (Last year, the March 1 corn stocks were 7.694 million bushels.)
The Stocks number is considered bullish because USDA was already estimating that the United States end the current market year with only 675 million bushels of corn. Those 675 million bushels are approximately an 18-day supply. USDA’s March 1 stocks estimates implies that this season stocks could actually end up closer to a 13-day supply. That was enough bullish news to reignite the market.
Corn sold off the past few weeks because there was increasing concern that Thursday’s stocks report could contain a bearish surprise. That potential surprise generated fear. Fear of the unknown temporarily ruled in a market that wants to be bullish. Now, fear is gone. Today's stocks report will allow the old crop to rocket toward new heights. However, the most experienced fund manager recognizes that they need to take advantage of this strong price action. Consequently, the corn market is going to remain extremely volatile prior to pollination.
CBOT MARCH CORN FUTURES
Current Market Values:
U.S. WEATHER/CROP PROGRESS
U.S. Drought Monitor Weather Forecast: A series of storm systems will maintain wet, cool weather across the eastern third of the nation, providing some additional drought relief to the southern Mid-Atlantic and Southeastern states. In contrast, mostly dry, increasingly warm conditions are anticipated from the central Gulf Coast into the central and southern Plains. Out west, the story of the past month will continue, with another round of locally heavy rain and mountain snow expected by the weekend from central and northern portions of California into the Northwest. However, little if any precipitation from this system is expected to reach the lower Four Corners region.
The CPC six to 10 day forecast (April 5-9) calls for drier-than-normal conditions from the southern Great Basin and Four Corners region into the central and southern Plains. In contrast, above-normal precipitation is expected across the eastern quarter of the nation, although southern Florida may remain abnormally dry. Abnormal warmth across the Gulf Coast region will contrast with near- to below-normal temperatures across the remainder of the U.S., including Alaska. 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 1,914,900 MT—a marketing-year high—were up noticeably from the previous week and from the prior four-week average. Increases were reported for unknown destinations (1,219,900 MT), Japan (304,800 MT, including 57,700 MT switched from unknown destinations and decreases of 5,700 MT), South Korea (114,200 MT), Taiwan (60,300 MT), Egypt (60,000 MT), and Mexico (54,100 MT). Decreases were reported for Jamaica (9,500 MT), Honduras (2,600 MT), and Panama (2,000 MT). Net sales of 316,500 MT for delivery in 2011/2012 were for unknown destinations (310,000 MT) and Panama (6,500 MT). Exports of 1,020,000 MT—a marketing-year high—were up 16 percent from the previous week and 8 percent from the prior four-week average. The primary destinations were Japan (234,500 MT), Mexico (225,200 MT), South Korea (215,000 MT), Egypt (108,100 MT), Colombia (88,900 MT), and Taiwan (82,500 MT).
Barley: There were no sales reported during the week. Exports of 700 MT were to Canada.
Sorghum: Net sales of 41,200 MT resulted as increases for Spain (72,000 MT, including 60,000 MT switched from unknown destinations), Morocco (16,500 MT), Mexico (9,700 MT) and Japan (1,000 MT), were partially offset by decreases for unknown destinations (58,000 MT). Exports of 248,800 MT were to Spain (169,800 MT), Mexico (62,400 MT), Morocco (16,500 MT), and Taiwan (100 MT).
DISTILLERS DRIED GRAINS WITH SOLUBLES (DDGS)
The USDA crop report has been delivered. Bearish planting intentions had no effect on CBOT corn prices as they spiked on Thursday and Friday, and carryover stocks are projected to still be low for 2011-2012. Some trade comments are that “Market prices shouldn’t cool off until (the) new crop (comes in)”; leaving little room for error from factors such as weather, yields and quality.
In anticipation of yesterday’s report, market prices have been difficult to discover as the spreads between offers and actual bids are as much as $15/MT apart. Again this week the market noticed many buyers who seemed to be sitting on their hands waiting for news and more clarity on the market place before they take any action. Having this much volatility slows actual sales.
Despite the above, there are several reports of important continued and new business in the export market. The ethanol industry has been taking advantage of the Brazilian demand that provides positive margins on ethanol for the time being.
A new confirmed trade to Uruguay has been reported by an important supplier for LH April for 12,000 MT. The market continues to see sales to Morocco with an average of 30,000 MT per month. Other firm buyers in the market have been Vietnam for 15 TMT, Ireland for 10 TMT, and Israel for up to 25 TMT.
Overall, the DDGS market is waiting to see how all this settles down for more transparent trade. This may be difficult as volatility has not stopped throughout these first months of the year.
Ethanol Comments: The United States government seems to be quietly informing the ethanol industry that there will be some reductions in federal tax credits that promote the use of biofuels. Public criticism of the 45 cent tax credit for each gallon of ethanol blended has been particularly intense. The loudest outcry is against spending $5.4 billion on a product that already has mandated usage. Because that argument is difficult to refute, ethanol associations are lobbying Congress to potentially replace the current tax credit with one that is adjustable and tied directly to the price of crude oil.
President Obama seems to have heard the outcry and is publically calling for reforms to current biofuel incentives. The President supports federal funding of new production facilities to create ethanol from switchgrass and wood chips. Perhaps after these facilities are created, someone will explain to the public that there is still no technology that efficiently converts biomass into ethanol.
Argentina: Chinese officials arrived in Argentina to work on agreements for the purchase of corn. Argentina plans to export 11.5 of its total 21 million metric tons of corn production. Next year, Argentina plans to negotiate new corn export contracts with Russia. Between now and then, Argentina’s farmers are battling their government’s efforts to restrict exports to dampen domestic prices.
Australia: Australian farmers are somewhat frustrated as they watch the Australian dollar continue to climb higher, gaining nearly 6 cents in just two weeks. Australian farmers are hoping this strength is temporary. One reason for the strength in the Australian Dollar is the large inflow of cash from European insurance companies to pay for damages that resulted from the floods in Queensland.
Brazil: Brazil is in the mist of harvesting its soybeans but recent reduced truck and ocean freight rates have created a price advantage for American grain exports. The decrease in ocean rates potentially happened in anticipation of a normal seasonal decline of U.S. grain shipment at this time of year.
China: Foot and mouth disease had been reported in the Northwest part of the country. China’s hog industry consumes a lot of corn but they have recently been plagued with problems. In February there was a more pronounced outbreak of foot and mouth disease. At the same time, the industry was also hit with scandal when hog producers were caught giving banned hormones to their herds.
EU: The European Union’s March inflation rate was the highest in two and half years and the European Central Bank is likely to raise interest rates. The higher interest rates should cause the Euro to strengthen against the U.S. Dollar and South American currencies. That news is positive for both North and South American grain traders.
India: Current high prices continue to encourage India to export grains. India is now contemplating lifting a ban on wheat exports. India has banned wheat exports since 2007 in order to rebuild stocks and limit civil unrest resulting from food inflation.
Japan: The Nebraska Corn Growers Association has developed a program that encourages farmers to donate bushels of corn to help victims in Japan. The Japanese have been major buyers of Nebraska corn and U.S. farmers can show their appreciation and friendship through this program. Several different coops across the state of Nebraska will take farmer donations.
Russia/Ukraine: The Russian export ban on grain has created financial hardship for Russian farmers. A large private Russian grain trading company called Rosinteragrosevis has filed for bankruptcy. In the meantime, The World Bank is criticizing Ukraine’s export quota system, labeling it as inefficient.
OCEAN FREIGHT MARKETS AND SPREADS
OCEAN FREIGHT COMMENTS
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: There was no real excitement in world freight markets this week; it is mostly a same old same old situation. Markets are rather flat and looking for direction. Markets like this tend to sink rather than rise as a bull market needs to be fed regularly and there does not seem to be anything in front of us that is going to provide much sustenance for the bulls. So values are down slightly from last Friday. There is nothing particularly new out of Japan this week as afar as ocean freight goes. North African business seems to be going forward in the usual manner.
Below is a recent history of freight values for Cape size vessel shipments of Iron-Ore from
In dollar terms, the current spot and 30-day U.S. Gulf to China Panamax market is currently near $56.00/mt. The 30-45 day Panamax rates from the PNW to China are approximately $32.00/mt. The PNW/Gulf freight spread to Asia is approximately $24.00/tonne (.61/bushel for corn and .65/bushel for wheat and soybeans).