2011 Market Perspectives

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CHICAGO BOARD OF TRADE MARKET NEWS


Week_InReview

 

Outlook: : Corn Belt farmers reported having inconsistent corn yields, often within the same field. As a result, there is now more uncertainty about USDA’s probable corn yield estimates next Wednesday, October 12. Recent price action indicates that market participants accept the fact that yields could increase. However, USDA may be reluctant to increase yields much until the harvest is largely complete.  A limited yield increase and improved export sales, resulting from recent price action, could allow nearby corn futures to transition into a $6.20 to $6.80 trading range with basis levels that are close to harvest norms. That price scenario would be less than ideal for corn consumers, who would like to buy below $6.00, and corn producers, who would like to sell above $7.00.

China is currently dealing with its own successful corn harvest and there is no reason for China to rush into the market if prices increase to the mid-$6.00 range. Instead, China may continue to watch market developments to see if remaining long speculators’ exit and if prospects of expanded Argentinian production cause corn futures to drift back below $6.00. Alternatively, U.S. farmers realize that China is likely to re-enter the market and profitable ethanol producers can fill demand in the interim. U.S. farmers may wait patiently on spring planting volatility and the prospect of escalating prices before marketing the largest portion of their crop. The limited marketing should cause basis to rebound after harvest storage space is secured. These dynamics are reasons for the outlook that prices are likely to drift slightly lower in to a newly established $6.20 to $6.80 trading range before rebounding in the spring.

 

CBOT DECEMBER CORN FUTURES


 

CBOTFuturesGraph

Current Market Values:

FuturesPricePerformanceTable

U.S. WEATHER/CROP PROGRESS


CropCondition

U.S. Drought Monitor Weather Forecast: During October 5 – 10, 2011, a dramatic and long-overdue swath of moisture should push into the central and western Plains states, dropping over an inch of rain on a broad area from the northwestern half of Texas (except the Big Bend) northward through Nebraska and the adjacent Dakotas and Minnesota. Totals may reach 3.5 to 5.5 inches in central Nebraska and also southeastern parts of the Texas Panhandle. Farther east, a tropical system should spread heavy rains across Florida, southeastern Georgia, and adjacent South Carolina. Over 1.5 inches are expected through this region, with as much as 8 inches possible along the southeast Florida coast. Elsewhere, anywhere from a few tenths of an inch to a couple of inches of precipitation should fall on parts of the Rockies, with light rain at best in other areas of dryness and drought.

For the ensuing 5 days (October 11 – 15, 2011), odds favor a return to dryness from the central and southern Intermountain West eastward through the southern Plains and middle Mississippi Valley, including most of Texas. In contrast, wet weather is favored in the northern Rockies and in the dry areas of the Southeast. Follow this link to view current U.S. and international weather patterns and the future outlook: Weather and Crop Bulletin

 

U.S. EXPORT STATISTICS


 

ExportSalesAndExports

Corn: Net sales of 1,289,500 MT for the 2011/12 marketing year were mainly reported for Japan (491,900 MT, including 99,100 MT switched from unknown destinations and decreases of 3,200 MT), South Korea (418,300 MT), Mexico (240,100 MT), China (57,800 MT, switched from unknown destinations), and Guatemala (46,000 MT, including 28,200 MT switched from unknown destinations). Decreases were reported for unknown destinations (33,100 MT), Honduras (4,300 MT), and the French West Indies (4,100 MT). Net sales of 1,800 MT for delivery in 2012/2013 were reported for Mexico. Optional origin sales were reported for Mexico (30,000 MT). Exports of 755,700 MT were primarily reported for Japan (292,700 MT), Mexico (141,500 MT), South Korea (112,300 MT), China (58,000 MT), Colombia (48,500 MT), and Guatemala (32,200 MT).

Barley: There were no sales or exports reported during the week.

Sorghum: Net sales of 30,800 MT were reported for Mexico (23,500 MT), Japan (6,100 MT, switched from unknown destinations), and unknown destinations (1,200 MT). Exports of 45,600 MT were reported to Mexico (39,500 MT) and Japan (6,100 MT).

 

USExport_Inspections

USDAGrainInspectionsForExport

 

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DDGSPriceTable

 

 

DISTILLERS DRIED GRAINS WITH SOLUBLES (DDGS)


General Comments:

It has been a very quiet trade week. International buyers are sitting on the sidelines waiting for cheaper DDGS values, while soybean meal values worldwide are putting a lot of pressure on international DDGS values.

DDGS prices are exceptionally high relative to corn and SBM prices, and there is currently a lot of discussion in the market as international customers are claiming they will replace DDGS inclusion in feed rations with relatively cheaper substitutes.

Chicago is still the hot market; Cal and southwest prices are losing steam to Canola and soymeal.  Export prices are being rejected in favor of corn, as DDGS is too high priced on a relative basis for a many buyers. There are some exceptions.

Mexico is currently seeing considerable buying interest. DDGS values have held their ground and have actually made gains as a relative value to corn with the downtrend on the board. The embargo at the Texas border will seriously affect DDGS shipments going forward. Singles will not be allowed to cross at Eagle Pass or El Paso for the foreseeable future, and this will play into the hands of the unit train receivers.

Comments and Trades reported:

Local Trade:

  • 1,000 ST @ $242/ST California all in
  • 1,000 ST @ $242/ST PNW all in
  • 500 ST @ $245/ST  PNW all in
  • 1,500 MT @ $246/MT Chicago for Nov.
  • 1,000 MT @ $251/MT Kansas City for Oct

Trade bids/offers:

  • 800 MT @ $308/MT to Hai Phong for Nov
  • 1,000 MT @ $306 to HCM for Nov
  • 1,500 MT @ $266/MT Texas border (Mexico)

Ethanol Comments:

The nutriential makeup of Dried Distiller Grains (DDGS) can vary depending upon methods of production but averages around 29 percent protein, 10 percent fat and 9 percent fiber. Livestock, poultry and aquaculture producers have uniformly found that DDGS works well in the ration mix and demand is steadily increasing. (USGC sponsors seminars that teach feed manufacturers and wholesalers about DDG utilization.)

The United States has become the world’s primary supplier of DDGS and total exports for 2011 may exceed $1 billion, according to Sosland Publishing’s Biofuel Business. The largest export markets for U.S. DDGS are currently Canada and Mexico but sales to Southeast Asia are growing exponentially. Ethanol’s co-product has matured into a popular feed source..

Global production of DDGS is likely to expand as nations seek to replicate the success of the U.S. ethanol industry. Canada now mandates 5 percent renewable fuel and EU consumption is expected to increase to 10 percent by 2020. The Americas and Europe currently produce over 95 percent of global ethanol production.

USDA Secretary of Agriculture Tom Vilsack openly expresses his opinion that now is not the time to cut federal ethanol mandates. He said on Radio Iowa: “This is an opportunity for the country to wean itself off of foreign oil and to build a domestic industry with new job opportunities in rural America as well as increasing income levels for farmers and producers.” His recommendation to maintain a steady and consistent Federal ethanol program seems to receive additional support from studies at the Universities of Illinois and Iowa that imply there is little to gain by altering ethanol mandates whenever the U.S. corn stocks-to-use ratio falls below a specified level.

 

COUNTRY NEWS


 

Argentina: Argentina’s corn planting may be delayed until November due to lack of soil moisture, reports BusinessWeek. Long-run weather forecasts are calling for increased rains in late October. Argentinian farmers have a longer window in which to plant corn than many of their counterparts in the United States.

Brazil: Brazil, Argentina and Ukraine have more than doubled their combined share of global corn exports, from less than 20 percent to more than 40 percent in less than 10 years. U.S. producers have not been hurt by the declining share of global exports due to strong domestic demand.

China: China is forecast to produce an excellent corn crop but demand is expected to still outpace increased production. In order to rebuild stocks, China is likely to increase corn imports well above USDA’s current forecast of 2 MMT. Analysts estimated on average that Chinese corn imports this season will be closer to 4 MMT, according to a Reuters survey. China’s current large domestic crop creates a longer buying window.

EU: The European Union is currently in talks with Ukraine about substantially increasing purchases, from 20,000 MT to 2 MMT per year. Such an agreement is an interesting development because EU Common Agricultural Policy (CAP) has constantly supported its own farmers. However, CAP programs consume about 40 percent of the annual EU budget.

Mexico: The Agricultural Ministry is subsidizing the purchase of options for Mexican corn farmers and companies that use corn. The government covers 90 percent of farmer costs for options and 50 percent of corn option costs for corn consuming companies. The program’s aim is to encourage the Mexican agriculture sector to rely less on government and to assume more risk in hedging.

Russia/Ukraine: Buyers from the EU, Egypt’s General Authority for Supply Commodities (GASC) and Saudi Arabia are in talks with Ukraine about developing long-term contractual arrangements. Russia is also seeking to expand its trade agreements and intends to increase production to 125 MMT by 2020. Such factors imply that the structure of global agriculture is being altered by high prices.


OCEAN FREIGHT MARKETS AND SPREADS


BulkFreightIndicesForHSS

 

OCEAN FREIGHT COMMENTS

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: This is a strange freight market. The Chinese are on holiday this week and activity is slow, yet the Baltic Panamax indices climbed higher. The Panamax index from the U.S. Gulf/Atlantic to Asia is up to levels not touched since March 30, 2011 and the Pacific is still within its trading range for the month of September. Freight reports are attributing the rise in the Baltic indices to improved Chinese coal demand and “expectations” for next week. There has also been more activity in the Time Charter market. However, this alone cannot support rates, so once again we have speculative buying supporting the freight futures and, again, the physical market is not fully following the freight futures. Most charters are resisting paying up much, as they anticipate a drop back in the coming weeks. Japanese buyers have been unwilling to bid more than $54.00 for Panamax rates from the U.S. Gulf to Japan for November. We’ll have to see which side wins out. The world financial health outlook remains central in everyone’s mind and in projections. Will China enter the corn market next week, and will they buy 3-5 million tons this marketing year? Their true demand is unknown but the price should now be attractive.

BalticPanamaxDryBulkIndices

Below is a recent history of freight values for Capesize vessels of iron ore from Western Australia to China:

CapesizePricing

USAsiaMarketSpreads

 

The charts below represent total (MT) month-to-month Philippines container shipments for Jan-Sept. 2009, Jan-Sept. 2010 and Jan-Sept. 2011.

JanSept2009PhilippinesContainer

JanSept2010PhilippinesContainer

 

JanSept2011PhilippinesContainer

 

INTEREST RATES

 


 

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