2011 Market Perspectives
- Category: 2011 Market Perspectives
- Published on Friday, 21 October 2011 05:00
CHICAGO BOARD OF TRADE MARKET NEWS
Outlook: : The nearby December corn contract spent the week consolidating and forming a technical “pennant formation.” That technical pattern implies that the December contract should continue upward into the gap above $6.73. Today the nearby contract broke out of that consolidating pattern and attempted to confirm the bullish pattern. However, prices fell back down in the last half hour and the potential bullish pennant pattern now looks less than convincing. In all likelihood, the corn market will decide early next week if it is headed toward the lower or upper quartile of a new trading range.
Many farmers have been watching the formation of this week’s potentially bullish pennant formation. They are familiar with such technical patterns, and also recognize that corn futures are likely to be supported this spring by acreage and weather concerns. As a result, many farmers seem to be marketing just enough to cover year-end expenses and their intent is to market the larger portion in the new calendar years, after basis and prices improve. That strategy seems to make sense; however, some of the more successful producers are not allowing their focus on returns to cause neglect of input costs.
There is some discussion among market participants that input costs, primarily seed and fertilizer, could be surprisingly high this spring. Of course, no grower desires to be placed in the situation of having higher input costs during a season when global feed grain production is on the rebound. As a result, farmers are encouraged to utilize analytic resources (such as Excel spreadsheets, forecasts and market insights) that are available from extension offices affiliated with different state universities across the Corn Belt. Such tools are probably not new to the majority of producers, but this season warrants a thorough and early utilization of these resources to consider different options when developing marketing and production plans.
Cattle on Feed and Cold Storage will both be published this afternoon. The implied outlook could be for higher than expected beef prices in 2012, when these two reports are combined with the prospect of increased export demand from Japan and other Asian nations. The prospect of higher cattle prices could be factored through into the breakeven analysis of feedlot managers to help determine an acceptable purchase price for corn and DDGS. Again, the extension service has the resources and expertise to assist in the development of such analysis.
CBOT DECEMBER CORN FUTURES
Current Market Values:
U.S. WEATHER/CROP PROGRESS
U.S. Drought Monitor Weather Forecast: During the next 5 days (October 20-24), relatively tranquil weather will envelop most of the lower 48 States once the current storm systems in the Midwest and Northeast move out by early Friday. Expect the largest precipitation totals (1 to 3 inches) in the northeastern quarter of the U.S., especially Michigan and coastal New England. Five-day temperatures should be above-normal in the western half of the Nation and in northern New England, while subnormal readings cover the Midwest, mid-Atlantic, and Southeast. The CPC 6-10 day outlook (October 25-29) calls for an amplified ridge over the West Coast with a trough over the East. This translates to favorable odds of above-normal precipitation in the Northeast, southern Florida, and the central Rockies, with subnormal precipitation in the West, the Great Plains, and across the southern tier of States. Above-normal temperatures are forecast for the Far West, with subnormal readings predicted for much of the Nation east of the Rockies, especially in the South. 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 1,762,600 MT for the 2011/2012 marketing year were mainly reported for China (900,100 MT), Mexico (235,500 MT, including 7,200 MT switched from unknown destinations and decreases of 6,400 MT), unknown destinations (210,600 MT), South Korea (158,500 MT, including 95,000 MT switched from Japan), and Japan (57,100 MT, including 115,200 MT switched from unknown destinations and decreases of 60,500 MT). Optional origin sales for delivery in 2011/2012 were reported for Mexico (30,000 MT) and optional origin sales for delivery in 2012/2013 were reported for Mexico (60,000 MT). Net sales of 83,200 MT for delivery in 2012/2013 were reported for Japan. Exports of 563,400 MT were primarily reported to Japan (277,200 MT), Mexico (80,700 MT), South Korea (57,800 MT), Canada (31,200 MT), Egypt (28,400 MT), and Cuba (26,100 MT).
Barley: Net sales of 200 MT were reported for Taiwan. There were no exports reported during the week.
Sorghum: Net sales of 64,900 MT were reported for Mexico (62,900 MT), unknown destinations (1,500 MT), and Japan (400 MT). Exports of 18,500 MT were reported to Mexico (11,600 MT) and Japan (6,900 MT).
DISTILLERS DRIED GRAINS WITH SOLUBLES (DDGS)
The DDGS market is very quiet and there is no buying interest at today’s replacement levels. Markets are extremely tight for October and November, and prices are on the rise as short positions will probably roll into the November and December time periods. It seems that most ethanol plants are already sold for October, but a few still have some product left to sell for November. Current indications dictate favorable ethanol plant margins. The market is expecting most plants to push to a 100percent capacity soon (assuming they can source enough corn). This should create incremental DDGS availability for the November shipment.
From a container standpoint, the market perceives some capacity constraints as both YC & YSB start to get loaded in large volumes, consuming many boxes while carriers are phasing into their winter service and cutting capacity. It may be more difficult for DDGS to find an export home with the limited container capacity in the next couple of months.
There are rumors circulating in the market about China possibly waiving potential anti-dumping tariffs. No official position has been communicated at this time.
The market has indicated that an increasing number of exporters are falling behind on ETD requirements for sales. Many buyers will likely be receiving their product 1-2 weeks behind schedule, especially for Southeast Asia.
Buyers are still expecting DDGS prices to decline, but ethanol plants have yet to lower prices to levels that would make trade feasible. There are fewer new DDGS sales to report this week, but suppliers have indicated about some trades being made to China at $302 for the FH December shipment. Bids are currently at the $300 level where actual offers are $7 to $10 higher.
The market is extremely tight and suppliers are reluctant to ship to Mexico right now with the embargo in place at Eagle Pass and El Paso. Nearby market prices have increased $15 per MT and even more over the last week due to tight supply. Both November and December are quoted lower, but it looks like the tightness of supply should continue after October and the expectation is that price will come up to current spot prices.
Comments and Trades reported:
- No local trades reported
No trade bids/offers reported
Ethanol Comments: On Monday, USDA held their annual meeting with data users and basically faulted ethanol for recent poor performance in making quarterly stocks estimates and in the resulting implied in feed usage. Obviously, something has changed. Perhaps improved analysis is highlighting volatility that has always been within the market? The only certainty is that it is probably premature to fault ethanol for USDA’s forecast instability.
Secretary Tom Vilsack supports the program to install 10,000 flex fuel pumps throughout the United States. However, Senator John McCain created an amendment to stop all subsidies for gas stations to install blender pumps. Perhaps it was calls from ethanol supporters, but for some reason Senator McCain decided at the last minute to withdraw his amendment from the agriculture appropriations bill. The House bill has a similar provision to stop USDA from financially supporting blender pumps. So, the battle is not over.
Ethanol producers are being forced to swim upstream against a strong current. Representative Goodlatte of Virginia wants the Federal government to stop all mandates for ethanol. Without such opposing actions, the future for ethanol remains relatively bright even if the 45-cent per gallon blender’s credit expires at the end of the year. Demand should steadily increase due to strong exports and the Renewable Fuels Standard that calls for 15 billion gallons of corn-based ethanol to be steadily consumed by the year 2022.
Argentina: Argentina seems to be mimicking the success of the U.S. ethanol market as they work toward a mandate to produce 10 percent of their diesel production as a domestic biofuel. That required blend rate was just increased from 5 to 7 percent. Additionally, five new ethanol plants are starting up in Argentina, as reported by Reuters. In the meantime, President Cristina Kirchner looks poised to win the Presidential election. President Kirchner’s relationship with Argentina’s agricultural community has been difficult.
Brazil: The world of agricultural business has become so intertwined that nations such as Brazil and Pakistan are now forming agreements in agricultural research. There seems to be a concerted effort by developing nations with technical expertise to develop their own seed varieties so that they are beholding to no one.
Canada: The Canadian Wheat Board (CWB) is coming to an end. The CWB has been the world’s largest exporter of spring wheat, durum and malting barley. Farmers will be able to start forming their own pricing relationships by early 2012. The CWB has five years to learn to survive in the open market.
China: The standard of living for the average Chinese consumer had improved dramatically in the past 30 years, but many of the poorer Chinese consumers still spend about 50 percent of their total income on food. When that fact is considered, then it becomes more apparent why the recent food inflation rate (over 13 percent) is considered such a big deal by the Central Government. Under such conditions, it is very unlikely that the Chinese government will suddenly stop feed-grain and oilseed imports even if there are trade or currency disagreements with nations such as the United States and Argentina.
EU: The European Union has its own Common Agricultural Policy (CAP) that it adjusts every seven years. The EU is currently in that adjustment phase. High food inflation and enormous social debt is causing a lot of serious debate about numerous farm related issues. Those discussions are very similar to current discussions in the United States.
Russia/Ukraine: Ukraine has temporarily abolished their export tax for corn and wheat in order to compete against the Russians. The combined feed grain production from the Black Sea region is likely to become a serious global competitor, but currently a story on allaboutfeed.net reports that up to one-third of Russia’s grain is substandard.
OCEAN FREIGHT MARKETS AND SPREADS
OCEAN FREIGHT COMMENTS
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: Ocean freight markets calmed down this week as the rally of the past few weeks seems to have topped out. Rates in the U.S. Gulf/Atlantic have a weaker feel but have not changed much over the past week. Rates in the Pacific experienced the biggest change/drop. The tight situation in the spot markets is easing. The market remains inverted out to December/January.
Below is a recent history of freight values for Capesize vessels of iron ore from Western Australia to China:
The charts below represent total (MT) month-to-month Philippines container shipments for Jan-Sept. 2009, Jan-Sept. 2010 and Jan-Sept. 2011.