2011 Market Perspectives
- Category: 2011 Market Perspectives
- Published on Friday, 15 April 2011 05:00
CHICAGO BOARD OF TRADE MARKET NEWS
Outlook: Corn growers are currently able to market the unhedged portion of their 2010/11 production at attractive price levels. However, the current high prices are generating calls for adjustments to USDA programs that were initially created to sustain farmers under conditions of low prices and abundant stocks. Outcry is becoming increasingly negative against subsidies and support payments for grain producers while livestock herds continue to decline and general food inflation increases. Certain market participants proclaim that high prices are here to stay and financial support for U.S. grain producers needs to end. There is little discussion about the fact that production costs are increasing and that strong margins are necessary to encourage more production.
Increasing production takes time. Eventually, grain production will again outpace demand and prices could decline sharply and suddenly. When that happens, increased production costs will have already been incurred and any significant decline in future prices could place grain farmers in a financial squeeze
An increasing volatile roller coaster of prices may be on the horizon for grain growers. As a result, business management skills may become the most important asset that any farmer possesses. After all, a record crop does not guarantee profitability. Producers are encouraged to take advantage of learning opportunities that may be presented by local universities or Extension staff. Many of these workshops require limited time and investment.
CBOT MAY CORN FUTURES
Current Market Values:
U.S. WEATHER/CROP PROGRESS
U.S. Drought Monitor Weather Forecast: For the ensuing five days (through April 18), with few exceptions, prospects for heavy rain are greatest across areas that do not need the precipitation. The northern and eastern fringes of the large drought area centered over the south-central states may receive between 0.5 and 1.5 inches of rain (for example, southern Nebraska, northern Kansas, and much of both Arkansas and Mississippi). Near the Atlantic Seaboard, North Carolina is likely to receive additional, beneficial rainfall with over 0.75 inches in most areas, and up to 1.5 inches of rain is expected over Rhode Island, which will help reverse the current drying trend. Temperatures are forecast to be near to below normal over most areas of the CONUS, with the exception of above normal temperatures over the Southwest.The CPC six to 10 day outlook (valid April 19-23) is calling for enhanced chances of above-median precipitation over most of the eastern half of the lower 48 states, and western Washington state, and enhanced chances of below-median precipitation over the Southwest. The temperature pattern for this period is expected to feature elevated odds of below-normal temperatures over much of the northern CONUS and Alaska, and above normal temperatures over the southern and eastern CONUS. 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 848,000 MT were up 37 percent from the previous week, but down 24 percent from the prior four-week average. Increases were reported for Japan (468,900 MT, including 44,600 MT switched from unknown destinations and decreases of 16,700 MT), Mexico (124,600 MT), Taiwan (98,100 MT, including 58,000 MT switched from unknown destinations, 15,000 MT switched from Japan, and decreases of 1,200 MT), Saudi Arabia (67,600 MT, including 61,000 MT switched from unknown destinations), Indonesia (54,000 MT, switched from unknown destinations), and Singapore (48,000 MT). Decreases were reported for unknown destinations (189,800 MT) and Egypt (35,900 MT). Net sales of 253,500 MT for delivery in 2011/2012, reported for unknown destinations (261,200 MT), were partially offset by decreases for Japan (7,700 MT). Exports of 1,098,100 MT were up 8 percent from the previous week and 16 percent from the prior four-week average. The primary destinations were Japan (306,600 MT), Mexico (210,000 MT), South Korea (129,700 MT), Taiwan (96,300 MT), Saudi Arabia (67,600 MT), and Israel (65,300 MT).
Barley: There were no sales or exports reported during the week.
Sorghum: Net sales of 15,300 MT were mainly reported for Mexico (15,200 MT). Exports of 66,800 MT were to Mexico (48,400 MT), Japan (17,600 MT), and Taiwan (800 MT).
DISTILLERS DRIED GRAINS WITH SOLUBLES (DDGS)
As Chicago corn prices hover around the $7.50 bu range for May futures, DDGS prices move up and down with wide spreads from one week to another, trying to finding their place for trade.
DDGS markets are still fairly quiet and coming to grips with higher corn prices and supported DDGS prices. Spring shutdowns have kept some areas tight on product, which has provided some additional support to the markets in the near term. Overall, the domestic markets remain steady week by week, while export buyers remain on the sidelines. DDGS export markets feel like they are on the edge of buying, but just have not pulled the trigger on any big volumes.
Domestic DDGS demand has been steady. The market has noticed plenty of plant down time, which is keeping supplies tighter than normal. Due to slower international demand, especially in the bulk export markets, prices have stagnated. A lot of plants that had sold barges earlier have now begun buying those back and selling into the domestic market at some pretty handy pickups.
Overall, traders are quiet and waiting to get through this dry market or “Spring Break.”.
Ethanol Comments: USDA’s World Supply and Demand Report last Friday estimates that ethanol with consume 5 billion bushels of corn in the current 2010/11 growing season. Agricultural Secretary Tom Vilsack supports this increase ethanol production and is seeking to install 10,000 flex fuel pumps (with E85 capacity) over the next five years. Grants and loans are anticipated to pay for the installation of these numerous pumps. This activity is not without opposition and public outcry has strengthened against the current spending of approximately $6 billion to subsidize ethanol production.
Argentina: The Argentine government is struggling to pay back debt that it owns to a group of 16 nations, commonly called the “Paris Club.” After lots of debate and infighting, the Argentine government is considering increasing taxes on grain exports. Prior attempts to raise taxes on exports have resulted in nationwide protests by farmers and disrupted grain flow. The Argentinians may want to take a lesson from Australia, where the government and the farm community have much better relations.
Australia: Record U.S. corn prices are keeping demand strong for Australian feed wheat. Grain exports are flowing out of Australian ports where multiple companies compete against each other. This situation is relatively new because the Australian Wheat Board had a monopoly on all milling and feed wheat unit just a few years ago.
Brazil: Brazil’s President Rousseff made a state visit to China this week to visit her nation’s largest trading partner. Brazil is attempting to sell China everything from airliners to agricultural products. The Brazilians recognize that the Chinese are sitting on huge cash reserves of over $3 trillion. The Brazilians are interested in exporting their grains but have expressed concerns about foreign investors seeking to buy up large tracks of land.
China: China’s large cash reserves are allowing it to flex some economic muscle. The Chinese seem to see Brazil as a location for long-term investment. The Chinese would like to buy large tracks of farmland and drilling rights off the coast of Brazil. The Brazilians would rather sell the raw commodities and keep all land ownership in domestic hands.
EU: The European Union’s Trade Commissioner Karel De Gucht is not optimistic about the future of the Doha Trade talks according to a story by Reuters. The EU and U.S. seem to be pointing fingers at China, India, and Brazil for reluctance to open their domestic markets.
India: India is the world’s second largest wheat producer (behind China) and is expected to produce about 84 million metric tons in 2011. Yet, concerns about domestic food inflation are expected to keep exports constrained as new supplies are rotated through domestic stocks.
Russia/Ukraine: Winter crops are maturing in both Russia and Ukraine but both nations seem reluctant to make significant trade agreements until harvest sizes become more definitive. Ukrainian officials will determine available supplies in July as winter grains are being harvested and Russian officials intend to wait until fall before making any firm commitments.
OCEAN FREIGHT MARKETS AND SPREADS
OCEAN FREIGHT COMMENTS
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: It was another soft week in world freight markets. The Baltic indices were, and the market tone is, weaker. Vessel owners, however, are resisting the pressure to lower prices and many are ballasting to other markets to find business. Though the Baltic index was lower this week I’ve not changed fright values much. Bids for freight are lower and offers are unchanged from last week so we will have to see how that battle plays out over the week. Some believe we are reaching a price plateau or temporary bottom but we still face the reality of a Dry-Bulk fleet that is growing faster than cargo demand. Some of the larger Capesize vessels are going to anchorage rather than accept lower values.
Below is a recent history of freight values for Cape size vessel shipments of Iron-Ore from Western Australia to China:
In dollar terms, the current spot and 30-day U.S. Gulf to China Panamax market is currently near $50.00/mt. The 30-45 day Panamax rates from the PNW to China are approximately $29.00/mt. The PNW/Gulf freight spread to Asia is approximately $21.00/tonne (.53/bushel for corn and .57/bushel for wheat and soybeans).