2011 Market Perspectives

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CHICAGO BOARD OF TRADE MARKET NEWS


 

WeekInReview

Outlook: Fundamental factors, such as European economic turmoil and a stronger dollar, have exhibited some bearish influence on corn contracts for the past two weeks. However, speculative traders with remaining long positions in the December contract have also been a significant negative influence as they sell in order to lift their long remaining positions. Such selling should be ending, resulting in corn contracts returning to a trading range. Commercial traders, livestock producers and ethanol refiners are likely to recognize a sub-$6.10 price in the March corn contract as a buying opportunity.

Some of the large speculative traders have lost money on long positions that were established last summer, but that community is likely to return if they are offered the opportunity to buy March contracts below $6.00. Livestock producers (domestic and foreign) also recognize that they can lock in profitable returns with sub-$6.00 corn. Additionally, $6.00 corn is attractive to ethanol producers, regardless of hitting the “blend wall” or the demise of the 45 cent VEETC. Ethanol export demand should remain strong as long as global crude oil prices remain around $100. Seasonally, crude oil prices normally increase going into the summer driving season. Many farmers have considered these various factors and are holding on to the lion’s share of their stocks until pre-planting volatility causes corn contract to rebound this spring. Eventually, prices may again sell-off from such a rebound if expanded South American production occurs without a hitch, and the return to trend-yield looks more likely for the U.S. crop. The prospect of a second sell-off seems unlikely before May (such factors have been discussed for the past two weeks to emphasize that both feed grain producers and end-users need to develop a marketing plan).

CBOT DECEMBER CORN FUTURES


CBOTFuturesGraph

 

Current Market Values:

FuturesPricePerformance

U.S. WEATHER/CROP PROGRESS


U.S. Drought Monitor Weather Forecast: Over the next five days (November 17-21), temperatures are expected to drop as much as 15-20 degrees below normal across the northwestern quarter of the lower 48 states, and rise 10-15 degrees above normal from the southern Great Plains to the Great Lakes region. Moderate precipitation (0.5 to 2 inches) is anticipated from northeastern Texas and eastern Oklahoma generally eastward and northeastward to the mid-Atlantic region. The CPC 6-10 day forecast (November 22-26) continues to show the influence of a trough over the western CONUS and a ridge over the eastern CONUS. Temperatures are predicted to be above normal for nearly all areas east of the Rockies, and near to below normal west of the Rockies. The best chances for above-median precipitation are in the West, and from eastern Oklahoma northeastward through the mid-Atlantic region. The best chances for below-median precipitation are over the southern Rockies and southern High Plains, most of the central and northern Plains, and over the southern Atlantic Coast region. Follow this link to view current U.S. and international weather patterns and the future outlook: Weather and Crop Bulletin.

 

U.S. EXPORT STATISTICS


ExportsSalesAndExports

 

Corn: Net sales of 208,900 MT for the 2011/2012 marketing year resulted as increases for South Korea (170,100 MT, including 114,600 MT switched from unknown destinations), Japan (149,500 MT, including 74,700 MT switched from unknown destinations and decreases of 5,100 MT), Mexico (144,000 MT, including 7,400 MT switched from unknown destinations and decreases of 37,900 MT), China (60,000 MT, switched from unknown destinations), and Saudi Arabia (55,900 MT, including 52,000 MT switched from unknown destinations), were partially offset by decreases for unknown destinations (426,200 MT), Peru (5,600 MT), and Morocco (2,700 MT).  Exports of 895,100 MT were up 43 percent from the previous week and 37 percent from the prior 4-week average. The primary destinations were to Mexico (293,000 MT), Japan (201,100 MT), South Korea (115,000 MT), China (63,400 MT), Saudi Arabia (55,900 MT), and Venezuela (31,000 MT).

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

Sorghum: Net sales reductions of 3,100 MT were reported for Mexico (1,600 MT) and unknown destinations (1,500 MT). Exports of 24,000 MT were reported to Mexico.

USExportInspections

 

USDAGrainInspectionsForExport

 

 

FOB


YellowCorn_FOB

 

SorghumFOB

BarleyFOB

CornGlutenMealAndFeedPelletsFOB

DDGSPriceTable

 

DISTILLERS DRIED GRAINS WITH SOLUBLES (DDGS)


General Comments:

The export market remains very hand to mouth with limited interest, as most buyers feel DDGS are too expensive to work into rations. The break in the board could provide some relief on prices, which could prompt buyers to come in and show firm bids. Therefore, trade is still quiet as international buyers can replace protein with cheaper sources through other commodities. The biggest slack in the supply chain seems to be sales to China..

From a domestic loading standpoint, the DDGS inverse from November-December seems to have disappeared. Many plants are now pushing product out early, due to a lack of equipment for transportation. The Thanksgiving Holiday will bring added pressure, and buyers that have the capacity to take quick ship product will have the opportunity to make some cheap spot purchases.

The market went higher again this week, but things are starting to feel a little toppy. The market has noticed a large scale of DDGS substitution on the west and east coasts, respectively, but not much in the heartland—seemingly because cash corn is hard to buy. DDGS is still extremely tight and prices are quite firm.

DDGS is very limited in rations in Mexico at this time. Buyers are only buying their immediate needs and hoping for a break in price. However, the supply situation in the U.S. will need to change for that to happen.

Comments and Trades reported:

Local Trade:

  • No reports.

 

Trade bids/offers:

  • $305/MT traded for FH December—25 cars to Laredo

Ethanol Comments: Exports seem to be a promising avenue to utilize increased ethanol production. In September, 70 million gallons were exported. Exports and a number of e-85 pumps across the Midwest are making it possible for ethanol production to exceed the 10 percent mandate. The prospect for continued strong demand seems to be sufficient justification for an established company such as DuPont to build a new $275 million cellulosic ethanol plant. The new plant should be complete by 2013 and intends to produce biofuel from corn leaves and stalks. According to the Ames Tribune, Steve Mirshak, director of DuPont Cellulosic Ethanol, states, “It’s good for the environment and it’s good for energy independence.”

 

The plant will need up to 600,000 bales of stover to produce 27 million gallons of ethanol per year. To create ethanol from stover, the plant will use a new technology which uses enzymes to create sugars. Full details of the process are being kept secret. The fruition of such production could be an exciting development for feed-grain producers.

 

COUNTRY NEWS


 

Argentina: Argentina has approved Syngenta’s Triple Stack corn for cultivation in 2012/13. The main insect threats to corn production in Argentina are army worm, sugarcane borer and corn earworm. Argentina is seeking to increase its competitive edge against Brazil, which already uses Syngenta’s Triple Stack variety.

Brazil: More Brazilian farmers are shifting marginal soy land towards feed-grain markets. As a result, total corn production is estimated to increase by over 17 percent in 2011/12, according to an article by DTN. Demand for seeds is so strong that stocks have supposedly run out in parts of Mato Grosso.

EU: Bulgaria is leasing land to China’s Tianjin State Farms Agribusiness Group Company for feed-grain production. All of that production will be exported to China. The Bulgarian Prime Minister stated that, “Bulgaria has made an important first step in the realization of joint projects with China. We have the potential and resources to develop eco-agriculture as well.” He stresses that Bulgaria has the lowest taxes in the EU, according to a story by Sofia News Agency

China: China’s economy had grown fivefold in the past decade, according to the World Bank. Strong economic growth is resulting in changing diets, as per capita pork consumption has increased 26 percent and the dairy herd has tripled in size. The result is that China’s consistently increasing corn production remains unable to keep up with their domestic demand for feed-grains.

Japan: Japan purchased 800,000 metric tons of corn from Ukraine. This substantial purchase was acquired by a combination of five different companies. Japanese farmers have been seeking ways to reduce costs after the March 11, 2011 earthquake and subsequent nuclear disaster destroyed feed plants and tainted both beef and milk production.


OCEAN FREIGHT MARKETS AND SPREADS


BulkFreightIndicesForHSS

 

OCEAN FREIGHT COMMENTS

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting:

The market hit a temporary bottom this week and then bounced a little. Trade wires are reporting that “some fresh cargoes entered the market”. This refers mainly to additional iron ore and coal demand from China. However, it will take considerably more than just “some fresh cargo” business to move ocean freight markets higher—and keep them there.

Obviously, the market still suffers from an oversupply of vessels and this will not abate until a couple of years out.

I am still greatly concerned about the financial health of a number of the dry-bulk and containerized shipping companies, and would strongly urge all who are chartering freight to carefully vet the owners and operators being considered for use. It will be a nightmare to get your cargo delivered if a vessel owner, with your cargo on board, goes bankrupt. This should be a concern for CIF buyers as well.

The Greek, Italian and general EU debt crisis continues to be a major worry and a negative influence on freight and financial markets. As the old quote from Hill Street Blues goes, “be careful out there”.

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 Japan container shipments for Jan.-Oct. 2009, Jan.-Oct. 2010 and Jan.-Oct. 2011.

JanOct2009JapanContainerShipments

 

JanOct2010JapanContainerShipments

JanOct2011JapanContainerShipments

 

INTEREST RATES

 


 

 

InterestRates

 

 

 

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