2011 Market Perspectives


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Outlook: Farmers seem generally confident that the nearby corn contract should trade back above $7.00, but it seems increasingly likely that that will not occur until the March 2012 contract takes the lead. Wednesday’s USDA report was considered moderately bullish due to a slightly larger than expected yield reduction, down from 148.1 bushels per acre to 146.7 bushels per acre. However, weak demand and outside market influences currently weigh on the market.

A summary of USDA’s WASDE report follows:


  1. USDA’s reduced production estimate was partly offset by a reduction in estimated demand so that total ending stocks for the current 2011/12 season are forecast to only decline 23 million bushels, from 866 million bushels to 843 million bushels.
  2. As a result of the small change in ending stocks, the estimated average farm price was left unchanged at $6.20 to $7.20 for 2011/12.
  3. Sorghum ending stocks increased 2 MMT, from 26 MMT to 28 MMT. The farm price of sorghum was left unchanged at $6.00 to $7.00 for 2011/12.
  4. Barley ending stocks increased 1 MMT, from 54 MMT to 55 MMT. The farm price of barley was narrowed from $5.30 - $6.30 to $5.35 - $6.05 for 2011/12.
  5. Global coarse grain supplies were projected slightly lower as reduced U.S. corn production and lower EU rye undercut higher Argentine sorghum, EU corn, barley and oats, and Kazakhstan barley production.
  6. Mexico’s corn production was reduced by a rather substantial 3.5 MMT, from 24 MMT to 20.5 MMT due to the combined influence of late rains, early frost and tight water reserves.
    1. (Note: U.S. comparative corn production is 313 MMT.)
  7. USDA increased their estimates for corn imports by China, Mexico and South Korea. These imports were more than the increased corn production in Argentina and the EU.
  8. Increased sorghum exports from Argentina offset reduced U.S. sorghum exports.
  9. Global corn ending stocks are reduced 1.6 MMT, with reduction in the U.S., Mexico, EU, Brazil outweighing increases in Argentina and China.




Current Market Values:



U.S. Drought Monitor Weather Forecast: Over the next five days (November 9-13), temperatures are expected to be above normal east of the Rocky Mountains and close to normal in the southeastern United States. In the central Plains, high temperatures should be 6-9 degrees Fahrenheit above normal; in the western United States, high temperatures will be about 3 degrees Fahrenheit above normal. As a trough works into the Great Basin, there is a good chance of precipitation, with the greatest amounts over the southwest, the California coast and the Pacific Northwest. As a strong low moves into the Great Lakes, associated precipitation will bring more than an inch of precipitation to many locations in the region.

The CPC 6-10 day forecast (November 14-18) continues to show the influence of a trough over the western U.S. as well as over the Great Lakes. Precipitation chances look to be best over the Great Basin and the Great Lakes, while the regions with the best chances for below normal precipitation are in Texas and Florida. Temperatures are projected to be below normal over the western United States, and the best chances for above normal temperatures will be over the east coast. Follow this link to view current U.S. and international weather patterns and the future outlook: Weather and Crop Bulletin.





Corn: Net sales of 251,900 MT for the 2011/2012 marketing year were down 60 percent from the previous week and 75 percent from the prior 4-week average. Increases were reported for Mexico (153,000 MT, including 21,900 MT switched from unknown destinations and decreases of 6,700 MT), Japan (133,300 MT, including 112,500 MT switched from unknown destinations and decreases of 35,900 MT), China (119,500 MT, switched from unknown destinations), Taiwan (37,200 MT), and South Korea (18,600 MT). Decreases were reported for unknown destinations (228,700 MT). Exports of 624,400 MT were primarily to Japan (193,300 MT), Mexico (134,500 MT), China (124,700 MT), South Korea (57,700 MT), the Dominican Republic (27,900 MT), and Taiwan (23,600 MT).

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

Sorghum: Net sales of 5,200 MT resulted as increases for unknown destinations (9,100 MT) were partially offset by decreases for Mexico (4,000 MT). Exports of 30,800 MT were mainly reported to Mexico.















General Comments:

The market is very quiet. DDGS sales are difficult to come by, and it is tough to find bids that margin with current freight levels and the risk associated with selling freight today.


Spreads between offers and bids still remain around $10 apart at the very least. The export market is uneventful. There is little to report this week on sales, mostly due to the uncertainty in the freight market. Several traders are not quoting anything beyond January.


Sales have slowed down significantly. However, the market is detecting a number of desperate customers trying to cover for November (some short positions out in SEA) and many for December and January. However, prices have been $10-15/MT apart. With the current high level of product price, coupled with the November GRI, a lot of customers have been frustrated by not being able to buy at the level they have been hoping for.


The market is still quite tight. California interest is picking up, and domestic demand has not let go. Trucks are still very active in the nearby (Chicago/KC).

Comments and Trades reported:

Local Trade:

  • 1,016 MT delivered at ramp Chicago at $26 /MT for LH November/FH December shipment and basis 35 Profat.


Trade bids/offers:

  • 600 MT at $310/MT CFR Kaohsiung for December Shipment.
  • Chicago containers traded for 2000 tons at $238/ ST.
  • 300 MT to KOBE at $315/MT (position not disclosed).

Ethanol Comments: The Supreme Court rejected a petition from the National Petrochemical and Refiners Association (NPRA) and the American Petroleum Institute (API) to strike down the Renewable Fuels Standard (RFS). At issue is whether a federal agency that missed “a statutory deadline for writing regulations” is allowed to “engage in retroactive rulemaking” based upon implied authority from Congress, according to analysis from World Perspectives.


This challenge to RFS has unfolded in the following manner:


  1. NPRA and API’s original challenge was rejected in December 2010 by the U.S. Court of Appeals in the District of Columbia (D.C. Circuit).
  2. A petition was filed in February 2011 in the D.C. Circuit, requesting an “En Banc Rehearing” — a request for all the judges that compromise the D.C. Circuit to review the matter previously decided by a three-judge panel. That request was rejected in April.
  3. The current petition for a “writ of certiorari” (request for review) was filed with the Supreme court in July 2011.
  4. The persistent effort was unsuccessful.


The outcome of this ruling has two sides for ethanol producers. According to NPRA, the petition “did not seek to challenge or call into question the important role biofuels play in our nation’s transportation fuel supply.” Instead, it called into question the EPA’s retroactive regulations that establish “a deeply troubling and potentially far-reaching precedent.” EPA’s potential increased reach in dust ruling and clean water permits could be a future concern for ethanol producers.




Argentina: A major oil shale discovery looks poised to increase Argentina’s oil reserves by a third. The discovery by Repsol Energy is estimated to contain about 750 million barrels of oil. Coupling such discoveries with Argentina’s development of ethanol production significantly increases the nation’s energy independence. Argentina’s economy is currently growing about 8 percent, which would be fantastic if inflation were not running about 20 percent.

China: China’s primary economic focus has been to reduce inflation, and it seems that their implemented policies are succeeding. China’s annual inflation rate fell to 5.5 percent in October. Premier Wen Jiabao said, “The best way of controlling price rises is to boost production.” That is positive news for global feed grain farmers because China’s food inflation is still running well above 10 percent. Rebuilding China’s corn reserves could start a ripple effect to help dampen food its inflation.

Mexico: USDA reduced Mexico’s corn production by a substantial 3.5 MMT (24 MMT to 20.5 MMT) in Wednesday’s WASDE report. Thisimplies that Mexico could increase their imports from the United States. (U.S. production is approximately 313 MMT and can easily meet increased Mexican demand.) A late start in Mexico’s summer rainy season and an early September freeze reduced yields. Mexico is expected to plant a reduced winter corn crop due to low reservoir water levels in the nation’s northwest, which accounts for 70 to 80 percent of the winter corn crop.

South Korea: USDA’s attaché in South Korea estimates the nation’s corn imports will equal 8 MMT this season. That is about half the size of Japanese corn imports (16 MMT) and only slightly below Mexico’s imports (9.8 MMT), but well above China’s estimated imports (3 MMT) and the EU’s imports (3.5 MMT).

Russia/Ukraine: The importance of global trade becomes evident as Russia seeks to include its $2 trillion economy in the World Trade Organization (WTO). Russia is likely to be approved into the WTO at the December 15th meeting in Geneva. Such actions should give global feed grain producers greater access to Russia’s aggressively growing poultry industry.





Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: Over the past six months, ocean freight markets have been interesting if nothing else. For me, it is interesting to see how excited and stubborn vessel owners and operators can get after a small rally in the market, and, how optimistic speculators can get in face of the overwhelming fundamentals. A good deal of the past market rally was due to speculative buying of the FFA futures.

To get a year-in-review perspective: We can look back and see that January started out with the Baltic P2A Panamax index in the Gulf-Atlantic sitting at 24,540 and the P3A Panamax index in the Pacific at 8,446. Physical rates were $52.00 and $27.00/MT, respectively. The market dropped to a calendar year low on  February 2 with the P2A index at 19,637 and the P3A index at 7969. Physical vessel rates were about $49.00 and $27.0/MT Gulf verses PNW.

The YTD high occurred on March 11 when the P2A index went to 27,427 and P3A to 16,783. Physical rates to $60.00 and 35.00/MT Gulf verses PNW. The summer months were relatively quiet and stable.

From September 12 to October 17, freight markets enjoyed a brief rally. The P2A index went up 5,718 points, or 17  percent, and the physical rates increased by $2-3.00/MT. The P3A Pacific index went up by 1,983 points, or 14 percent, and physical rates by 2.00/MT. But that was due to some logistical congestion and positioning as well as investor euphoria in the freight futures. Now we are on a four-week slide back to pre-rally market levels.

The market has flattened out a bit, but it is still slightly inverted out to January.

On the financial side, the Greek and Italian debt crisis is weighing on the markets as is the slowdown in China’s economic growth.



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 Malaysia container shipments for Jan.-Sep. 2009, Jan.-Sep. 2010 and Jan.-Sep. 2011.













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