2011 Market Perspectives

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CHICAGO BOARD OF TRADE MARKET NEWS


Week_InReview

 

Outlook: : Few surprises were contained within Wednesday’s WASDE. The corn yield estimate remained unchanged at 148.1 bushels per acre. Other adjustments within this USDA report related primarily to changes that had already occurred in the September 30 Grain Stocks Report.

A related item to the September 30 Grain Stocks Report is that Wednesday’s WASDE forecast increased U.S. feed grain supplies for 2011/12 due to larger beginning stocks. The increased stocks more than offset a decline in production that resulted from reduced harvested acreage. U.S. corn ending stocks for the current season 2011/12 (September/August) were increased from 672 million bushels to 866 million bushels.

USDA revised the world’s total coarse grain supplies upward by 10.4 million metric tons (MMT). Part of that increase was offset by greater usage, but global ending stocks still increased by 6.02 MMT. Much of the global supply increase resulted from the upward revision in U.S. stocks (up 5.3 MMT) and the remainder was due to increased foreign feed grain production.

The increased global supply estimate may enable feed grain prices to stabilize and transition into a new trading range for the next few months. Price volatility and risk premium seem unlikely to increase before the December 2011 contract expires. Unless U.S. export sales turn surprisingly strong, current corn futures are probably close to the mean of a newly established trading range. The December 2011 contract is trading around $6.40, March 2012 at $6.50 and July at $6.60. A 20 to 30-cent setback in these contracts could make the December 2012 contract, which has been trading below $6.00, attractive to potential buyers. Once again, the fact is reiterated that tactical planning generally pays off for both buyers and sellers.

 

CBOT DECEMBER CORN FUTURES


CBOTFuturesPriceGraph

 

Current Market Values:

FuturesPricePerformance

U.S. WEATHER/CROP PROGRESS


USCropCondition

U.S. Drought Monitor Weather Forecast: Early in the period from October 13-20, 2011, a pair of storm systems will generate widespread, locally heavy showers from the Midwest and Mississippi Valley into the mid-Atlantic and Northeast, with lighter showers falling across the Gulf Coast and Southeast. Over the weekend, breezy, cooler conditions will settle over much of the eastern U.S., while a weak Pacific disturbance will bring light rain – and perhaps even some wet snow – to northern portions of the Rockies and Great Plains. Elsewhere, high pressure will maintain dry, increasingly warm weather from the central and southern Pacific Coast into the central and southern Plains, including the Four Corners Region. The NWS 6- to 10-day outlook for October 18-22 calls for drier-than-normal conditions from the Pacific Coast to the southern Plains. Conversely, wetter-than-normal weather is expected across the Midwest, Southeast, and northern Plains. Above-normal temperatures across much of the western U.S. will contrast with cooler-than-normal weather from the central and southern Mississippi Valley into 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 1,258,900 MT for the 2011/12 marketing year were mainly reported for Japan (488,000 MT, including 109,300 MT switched from unknown destinations and decreases of 2,000 MT), Mexico (448,800 MT, including 14,500 MT switched from unknown destinations and decreases of 2,700 MT), China (119,300 MT, switched from unknown destinations), South Korea (118,500 MT, including 57,700 MT switched from unknown destinations), and Canada (51,100 MT). Decreases were reported for unknown destinations (131,200 MT). Net sales of 85,400 MT for delivery in 2012/2013 were reported for Japan. Decreases were reported for Venezuela (25,000 MT). Exports of 911,000 MT were primarily reported to Japan (262,100 MT), South Korea (173,200 MT), Mexico (138,200 MT), China (119,300 MT), Egypt (63,000 MT), and the Dominican Republic (40,600 MT).

Barley: There were no sales reported during the week. Exports of 100 MT were reported to Taiwan.

Sorghum: Net sales of 31,400 MT were reported for Mexico (27,800 MT) and Japan (3,600 MT. Exports of 15,800 MT were reported to Mexico.

 

USExport_Inspections

USDAGrainInspectionsForExport

 

FOB


Yellow_CornFOB

White_CornFOB

SorghumFOB

BarleyFOB

CornGlutenFeedPelletsAndMeal

DDGSPriceTable

 

DISTILLERS DRIED GRAINS WITH SOLUBLES (DDGS)


General Comments:

All-in-all, market was very quiet throughout the week. Supply is still very tight, as many of the ethanol plants did not ramp up from their shutdowns as they thought they would (shutdowns due to routine, seasonal maintenance before the new crop corn is harvested). A significant number of buyers thought that they would have at least some good access to cheap DDGS, due to harvest pressure; this has yet to materialize. It feels like the product will stay tight through Thanksgiving (i.e. the end of November).

Many of the ethanol plants are sold out through October/November. Some ethanol plants are still down, awaiting the new crop harvest. CNF DDGS prices remain too high and out of reach given buyers’ target prices. Adding to the mix, Chicago’s volatility increases the difficulty of price discovery. Many are looking for softer DDGS prices, although industry output plus local demand provides for firm levels.

The latest official export reports provide a healthy trade volume, despite the Chinese effect of significant lower imports when compared to 2010. As of August, DDGS exports are over 5.2 million MT, or 12 percent less than the same period last year. China imports are down 53 percent, but many other markets have increased their purchases, such as Mexico, up 16 percent (total 1.3 million MT January/August 2011) and Japan, with an increase of 46 percent (total 300 KMT January/August 2011).

 

Comments and Trades reported:

Local Trade:

  • 700 ST @ $254/ST PNW
  • 1,000 MT @ $249/MT Chicago
  • Chicago cars trading briskly @ $231.50/MT for November

Trade bids/offers:

  • 1,000 MT bought TX border @ $271/MT (Mexico trade)

Ethanol Comments: Ethanol producers may want to investigate a story by Dan Davidson on DTN called “Continuous Corn Takes a Hit in 2011” (see the link below).

http://www.dtnprogressivefarmer.com/dtnag/common/link.do?symbolicName=/ag/blogs/template1&blogHandle=production&blogEntryId=8a82c0bc31d5e6e30132ab5304dd08a2

 

This article seems to support the established notion that repetitively producing corn in the same field can reduce yields. The reason this fact is important to ethanol producers is because USDA’s current yield estimate of 148.1 could potentially decline if this season’s “better- than- expected” early yields are offset by reduced yields from fields with continuous corn production. The prospect of lower yields, talk of La Nina weather patterns, more corn acreage switching back to beans and returning Chinese demand this spring could act as a floor under the December 2012 contract. Consequently, ethanol producers may want to calculate where the December 2012 corn contract presents attractive margins, in case there is limited setback in nearby corn contracts

 

COUNTRY NEWS


 

Argentina: A delay in Argentina’s corn planting was anticipated, but recently rains have been better than expected and have recharged soil moisture levels. Bloomberg News reported that some of the rains were over 3 inches (80 millimeters). About half of the corn crop is currently planted.

Brazil: South American farmers were forecasted to increase their corn production by 10 percent or more, but the Financial Times reported that recent price instability is causing some South American farmers to reconsider the size of acreage expansion. Global stocks of feed grains are tight and market participants have been counting on increased production to help stabilize prices.

China: The recent decline in global grain prices encouraged China to purchase 1.5 million metric tons of corn. At least 900 thousand tons of that purchase is expected to originate in the United States. That would be the second largest sale of U.S. corn to China. The largest sale occurred in March when China bought 1.25 million metric tons from the United States. Prior to 2008, China was a net corn exporter but that status is unlikely to return due to aggressive growth in Chinese meat production.

EU: The Associated Press reported that the European Union is considering large cuts to food aid programs for the poor. This issue is likely to be watched with interest by the United States Department of Agriculture, who manages America’s food stamp program. True or not, the eurozone debt crisis is continually touted by news sources as supposedly being a significant influence on global commodity markets.

Mexico: It seems ironic that Mexico is the birthplace of corn and is the second largest importer of U.S. corn (behind Japan). This past week, USDA announced a sale to Mexico for more than 261 thousand MT. A primary reason for Mexico’s poor production may be their reluctance to plant genetically modified (GM) corn. That situation may start changing in 2012 as companies such as DuPont, Pioneer and Monsanto are being allowed to grow in some of Mexico’s northern states.

Russia/Ukraine: USDA increased estimated Ukrainian corn production from 18 MMT to 21 MMT for the current 2011/12 growing season. The increased Ukrainian production should pacify the near-term needs of expanding poultry operations across the Former Soviet Union.


OCEAN FREIGHT MARKETS AND SPREADS


BulkFreightIndicesForHSS

 

OCEAN FREIGHT COMMENTS

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: It has been an interesting week in world freight markets. I have to admit that the market exhibited more strength than I expected. The Baltic freight indices started the week on a higher note and strengthened all week – this was the strongest showing for the market this year. Gulf-Atlantic Panamax rates are now sitting at their 2011 highs of $59-60.00/MT to Japan. Additionally, the Pacific has matched its 2011 high water mark of $36.00 to Japan.

The markets were supported by better than expected iron ore and coal demand as well as seasonal grain demand from North America. The strength in the Pacific has halted most ballasting to the U.S. Gulf and created a tight supply in that region. So, what happens now? There are no real logistical snags in the market to slow turn times. Will the demand for spot vessels continue to increase or will these vessels make quick turns and then weigh on the market next week? Will the demand for iron ore and coal continue to increase, or was this a bit of an aberration in the demand cycle? The market is inverted by about $1,000 per day, going out to December. Therefore, the December market is currently looking $2-3.00/MT cheaper than the October market. There are certainly lots of questions in need of good answers, so things will surely stay interesting. However, I personally don’t see the world financial outlook improving fast enough to absorb the growth in vessel supply; I’m on the side that believes this rally will be difficult to maintain over the next 60 days.

China finally did enter the market and bought 1.5 MMT of corn (including 900,000 MT from the USA). Their true demand is unknown but prevailing prices should be attractive enough to keep them interested. I currently see 11 soybean vessels, equal to 660,000 MT of cargo, sitting in the PNW elevator line-up. Last week China loaded 4.7 million bushels of corn and 15.4 million bushels of soybeans out of the U.S. U.S. Corn inspections YTD are running 70 percent behind last year and soybeans 58 percent behind last year. This has negatively impacted U.S. export elevation margins, though the harvest demand should provide some relief to that

 

BalticPanamaxDryBulkIndices

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

CapesizePricingTable

USAsiaMarketSpreads

 

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

JanSept2009ContainerGraph

JanSept2010ContainerGraph

JanSept2011ContainerGraph

 

 

INTEREST RATES

 


 

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