2011 Market Perspectives
- Category: 2011 Market Perspectives
- Published on Friday, 22 April 2011 05:00
CHICAGO BOARD OF TRADE MARKET NEWS
Outlook: If recent weather forecasts are accurate, then planting conditions should improve through May 5. New extended-size planters enable farmers to cover a lot of ground and it is still possible to get most of the United States corn crop planted by the third week of May. As well, recent futures prices will encourage farmers to plant as much corn as possible. (Last season’s early planting schedule did little to benefit final corn yields.).
The final success of the crop will depend primarily upon weather in July and August. Extreme heat can hamper pollination even when there is a nice uniform looking stand. On the other hand, a field can have several drowned out spots and still produce excellent average yields if the summer weather is favorable.
It seems highly probably that the current ample soils moisture will eventually lead to market discussion about “shallow roots.” However, that talk is probably not going to be taken seriously for at least another 45 days. Normally corn does not silk for about 65 days after emergence, and matures around 125 days after emergence according to the University of Illinois Extension Service. In the meantime, funds will have to determine what they are going to do with their speculative long positions that once again topped 400 thousand contracts. More than likely, their indecision is going to lead to increased volatility prior to pollination.
CBOT MAY CORN FUTURES
Current Market Values:
U.S. WEATHER/CROP PROGRESS
U.S. Drought Monitor Weather Forecast: During the April 28-May 2, 2011 time period, there is an enhanced probability of precipitation extending across the northern tier of the country. Later in the period, this precipitation is expected to move into the Midwest and Southeast. Temperatures are generally forecast to be normal to above normal from the central U.S. into the East Coast. Below-normal temperatures are generally expected to migrate from the Pacific Northwest early in the period to the central U.S. later in the period.For the ensuing five days (May 3-7, 2011), the odds favor normal to cooler-than-normal conditions over much of the northern part of the lower-48 states, from the High Plains to the Northwest. Warmer-than-normal conditions are expected across the Southwest and the South and into the Southeast, along the Gulf Coast. The odds of above-normal precipitation are greatest across the northern tier of the country, in the South, and up through the Ohio Valley and into southern New England. Odds favor below-normal precipitation in the Southeast and the Southwest, extending into the lower Plains. 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 349,000 MT were down 43 percent from the previous week and 65 percent from the prior four-week average. Increases were reported for Japan (244,600 MT, including 129,600 MT switched from unknown destinations and decreases of 38,200 MT), Cuba (27,800 MT, including 25,000 MT switched from unknown destinations), Guatemala (25,000 MT), unknown destinations (17,400 MT), Colombia (15,000 MT), and Jamaica (9,400 MT). Decreases were reported for Mexico (18,300 MT), South Korea (5,900 MT), and the French West Indies (4,500 MT). Net sales of 94,700 MT for delivery in 2011/2012 were for unknown destinations (76,200 MT), Panama (10,100 MT), and Japan (8,400 MT). Exports of 907,800 MT were down 3 percent from the previous week and 11 percent from the prior four-week average. The primary destinations were Japan (249,400 MT), South Korea (202,400 MT), Mexico (157,200 MT), Cuba (52,800 MT), Taiwan (44,500 MT), and El Salvador (37,000 MT).
Barley: There were no sales or exports reported during the week.
Sorghum: Net sales of 45,300 MT resulted as increases for Mexico (47,100 MT) and Japan (3,200 MT, including 3,000 MT switched from unknown destinations), were partially offset by decreases for unknown destinations (5,000 MT). Net sales of 3,000 MT for delivery in 2011/2012 were for unknown destinations. Exports of 77,500 MT were to Mexico (74,300 MT) and Japan (3,200 MT).
DISTILLERS DRIED GRAINS WITH SOLUBLES (DDGS)
Overall, the DDGS market is quite slow again this week. Barges are still at a healthy discount to domestic trade. There is no news on the Chinese front. The only Asian business currently being done is by container as reported by the trade.
The market has stalled and in the near term may be heading down from its earlier highs. The Mexico market seems to be mainly hand to mouth, with buyers waiting for cheaper prices.
DDGS offerings in California are back to where they were last week. There was a little movement when the corn market was up 25 cents per bushel and we saw some trade at better than $250/st. However, it has calmed back down to the $245-250/st range. Price competition from corn gluten feed is pressuring DDGS values a little.
Another ethanol plant started up this week in Keys, California. It is a 50 million gallon plant and will be producing another 45-50 truck loads per day of wet distiller grains. This will probably put some additional downside pressure on DDGS prices as the Northern California market will have almost 100 truck loads per day that will need to find homes.
Ethanol Comments: The future of ethanol is becoming almost as volatile as the corn market. Senator Inhofe (R-Oklahoma) has put together a bill that will allow states to opt out of the Renewable Fuels Standard Program. As well, the National Wildlife Federation (NWF) filed suited against the EPA for failing to protect grasslands from agricultural development. NWF intends to protect grasslands from increased biofuel production.
Secretary of Agriculture Vilsack seems to sense the mounting pressure is becoming difficult to withstand and insists that any reduction in biofuel subsidies need to occur gradually through time. The popularity of biofuels is even in decline abroad as Chinese officials have decided to limit biofuel and other non-feed related activities for corn. The future of biofuels is also becoming more uncertain in Europe. EU officials have until July to decide if laws relating to biofuels need to be altered or eliminated due to the ripple effect known as indirect land-use change. Even Brazil is considering reducing the amount of ethanol in gasoline from 25 to 20 percent.
The ethanol industry points out that it seems unfair that ethanol tax breaks may be when the petroleum industry receives significant tax breaks and subsidies. However, House speaker Boehner (R-Ohio) says that he is willing to consider reducing those incentives. The problem is that oil companies have a much bigger stick when threatening to expand foreign rather than domestic operations while ethanol is tied to the domestic corn supply.
Argentina: Corn prices in Argentina were negatively influenced by recent price weakness of American futures contracts. Argentinian farmers had a successful corn harvest and continue to wait patiently for a large order from China, which has still not materialized. In the meantime, the Argentine government continues to raid international grain companies to seek evidence of tax evasion.
Australia: There is some public outcry in Australia against Cargill’s attempt to buy the former commodity business of AWB Limited. There is concern that few large multinational firms are gaining increased control of the global grain market.
Brazil: Grain exports from Brazil’s northern ports have more than doubled since 2005, reports a news story from DTN. The cost of transportation to northern ports is about half that of going over the mountains that line the southern coast.
China: China can momentarily limit its industrial use of corn, but long-range demand will continue to outpace domestic production. As a result, the days of surplus corn production in China are over, reports a story by Reuters. China is the world’s second-largest user of corn behind the United States.
EU: July is the deadline for the EU to decide if its laws relating to biofuels need to be altered or eliminated due to the ripple effect know as “indirect land-use change” (ILUC). A Washington DC-based firm, International Food Policy Research Institute (IFPRI), has been hired to study the problem.
India: India and China are aggressively buying South Africa’s new bumper crop of corn. South Africa recently jointed the “BRIC” group of nations, comprised of Brazil, Russia, India and China, which has had opened a huge new marketplace for its agricultural produce.
Russia/Ukraine: A story in the Financial Times reported that traders at Glencore, a Swiss-based trading company, urged Russia to impose a grain export ban and benefited from a large long position. Such news could fuel politicians such as President Nicolas Sarkozy of France who has often blamed speculators for rising food prices.
OCEAN FREIGHT MARKETS AND SPREADS
OCEAN FREIGHT COMMENTS
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: Dry-Bulk freight values bounced up slightly this week. There was no significant news in the market but we are in front of a three-day (May day/Labor day) holiday in much of the world. The overall story remains the same; we have an excess of vessels chasing cargo demand that is not growing as quickly as new builds come onto the market. I therefore do not anticipate a bull run in freight markets. I participated in the USGC-ASA-IM S.E. Asia Transportation conference in Singapore earlier this week and had the opportunity to listen to Ocean freight managers from Cargill, Bunge and Singapore brokerage houses. All the presenters pointed out the same market dynamics and painted a difficult picture ahead for vessel owners. The general opinion was that values have to sink to levels that encourage vessel scrapings and vessel lay-ups. And we are rapidly approaching that market level. It is the royal wedding today and thus is a holiday in the U.K. and there are no Friday updates to the Baltic market.
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).