1. Chicago Board of Trade Market News
Outlook: Today’s USDA Acreage report surprised the market by reporting larger-than-expected corn acreage, while the Grain Stocks report supplied confirmation that high cash basis levels are presently justified. Corn acreage was reported as 97.38 million acres. This number is not only substantially larger than the average estimate of trade analysts, which was 95.31 million acres, but also slightly larger than the March estimate of 97.28 million acres. The combination of the large acreage and current non-threatening weather patterns pressed the new crop December contract, while the July contract was elevated by the contents of the Grain Stocks report.
The December contract is unlikely to go far below $5.00 per bushel prior to pollination. Additionally, the July contract (and eventually the September contract) is likely to add some support. If growing conditions remain favorable in the U.S., China and the Black Sea regions, then a further decline in prices could take place around mid-August.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: The NWS WPC four-day (June 28-July 1) Quantitative Precipitation Forecast (QPF) shows the best chances for precipitation east of the Mississippi River, with the heaviest rains possible in the Ohio Valley and Northeast as well as the Gulf and Atlantic Coasts, where 2-3 inches or more could fall. West of the Mississippi, prospects look much bleaker, with only modest rains being forecasted. Temperatures over this same period look to be seasonable or even below-normal over the Eastern third of the U.S. in combination with the forecasted rains. The same can’t be said for the West, where temperatures will build in concert with the high pressure ridging there, bringing the prospects of well above-normal readings (in the 6- to 13-degree range) in California, the Intermountain West, the Pacific Northwest and the Northern Rockies.
The six- to 10-day (July 2-6) outlooks are showing that temperatures are likely to stay above normal in the Intermountain West and Pacific Northwest, including all of California.The Northeast appears more likely to be above-normal on the temperature side too. The Central U.S. looks to be cooler-than-normal from the Front Range to the Ohio Valley. As for precipitation, the Southeast and Northeast look to be wetter-than-normal, as do parts of Southern Nevada, Northern Arizona and Central New Mexico in what may signal a start to the monsoon. Below-normal precipitation is expected in northern reaches of the Pacific Northwest (Washington over to Montana) and over into the Northern Plains and Upper Midwest. Follow this link to view current U.S. and international weather patterns and the future outlook:Weather and Crop Bulletin
4. U.S. Export Statistics
Corn: Net sales of 336,700 MT for 2012/13 resulted as increases for unknown destinations (140,100 MT), Japan (72,100 MT), Venezuela (58,000 MT, including 20,000 MT switched from unknown destinations), Costa Rica (25,000 MT) and Mexico (11,400 MT) were partially offset by decreases for Canada (1,400 MT). Net sales of 153,600 MT for 2013/14 were primarily for Mexico (77,400 MT), unknown destinations (62,900 MT) and Japan (7,100 MT). Exports of 151,200 MT were down 53 percent from the previous week and 52 percent from the prior four-week average. The primary destinations were Venezuela (58,000 MT), Mexico (46,400 MT), Japan (25,500 MT) and Honduras (13,900 MT). Optional Origin Sales: For 2012/13, outstanding optional origin sales total 65,000 MT, all South Korea. For 2013/14, outstanding optional origin sales total 100,000 MT, all Mexico.
Barley: Net sales of 400 MT were reported for Taiwan. Exports of 1,600 MT were primarily to Taiwan (1,500 MT) and South Korea (100 MT).
Sorghum: Net sales of 17,500 MT for 2012/13 were reported for Japan. There were no exports reported during the week. Optional Origin Sales: For 2013/14, outstanding optional origin sales total 60,000 MT, all China.
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Buyers who worked with DDGS merchandisers to extend some of their coverage through midsummer are in a better situation than those who remained hand-to-mouth buyers after the market reacted to today’s USDA reports.
High July corn prices will encourage ethanol facilities to turn around, and that will result in less DDGS for summer. Of course, demand could also be down since pasture conditions seem favorable and less lightweight cattle will be placed on feed this summer. South American corn supplies may also keep export demand in check. Prospective prices this fall look attractive, but end-users who do not have coverage will have to run through a gauntlet of ugly prices between now and then.
DDGS inclusion rates are unlikely to increase after today’s rally in old crop contracts, but DDGS still remains competitive in the ration mix as near-term soymeal also rallies. As of this morning, Mexican demand was reported to be steady. Korean buyers were making increased inquiries, while Chinese and Vietnamese buyers were also active. However, buyers did secure a period of protection coverage, and they could temporarily back away from the market. Merchandisers are working with buyers who have immediate needs.
Ethanol Comments: Washington D.C. lived up to expectations this week, as several Congressional meetings occurred to discuss altering the Renewable Fuels Standard (RFS), and true to form nothing newsworthy came out of them. The fact is, any major alteration to policy seems unlikely at this time because the Obama administration continues to support the RFS.
Ethanol imports declined by an average of 27,000 barrels per day (bpd) for the week ending June 21, and decreased from 65,000 bpd to 38,000 bpd. That news is welcome, because the weekly production level of 885,000 bpd was not only an increase from the prior week’s level of 873,000 bpd, but also above the level seen this time last year. It would take this level of imports a long time to rebuild the current stocks of 16.3 million barrels back to their year ago levels of 20.8 million barrels. Additionally noteworthy is the fact that the week-to-week change in ethanol stocks was a decline rather than an increase.
Ethanol producer margins have recently tightened, but the prospects of maintaining positive margins through this summer looks promising. USDA reported the differential between processing products and corn as the following:
• Illinois differential decreased to $2.20 per bushel, which is down from $2.21 the prior week, but above $1.30 last year.
• Iowa differential decreased to $1.86 per bushel, which is down from $1.90 the prior week, but above $1.40 last year.
• Nebraska differential decreased to $1.78 per bushel, which is down from $1.95 the prior week, but above $1.22 last year.
• South Dakota differential decreased to $1.98 per bushel, which is down from $2.04 the prior week, but above $1.46 last year.
7. Country News
Argentina: The world’s third-largest corn exporter approved 16 MMT of corn for export for the 2013/14 crop year, according to Reuters. This is 1 MMT more than was authorized for export in the 2012/13 crop year and is expected to spur August planting. Argentina generally caps export sales to ensure sufficient domestic supplies in order to keep prices down in the country’s inflationplagued economy.
Canada: Monsanto has announced that it will invest $100 billion over the next decade on developing corn for planting in Western Canada, reports Reuters. Western Canada, while a fertile farming region, has traditionally been better suited to the production of wheat and canola. Monsanto has stated that its intention is to develop corn that matures earlier than contemporary breeds, which would allow corn to be planted on some 26 million additional acres in Canada. After taking crop rotations into account, Monsanto has indicated that corn may be annually planted on 8-10 million acres of Western Canada by 2025. Currently corn in Western Canada is only planted on 300,000-400,000 acres in southern Manitoba.
South Africa: Yellow corn for September delivery on the South African Futures Exchange in Johannesburg has decreased by 1.3 percent to $233.89.MT, while white corn fell 0.9 percent to $233.51/MT, reports Bloomberg News.
Sub-Saharan Africa: Both the Kenyan and Ugandan governments have announced that they will make two drought-resistant non-GMO breeds of corn available for purchase domestically in late 2013 or early in 2014, according to WPI. This decision was made with the hope that it would improve the average corn yields in both countries. Kenya currently averages 2.3 MT/hectare, while Uganda averages 1.5 MT/hectare, which is well below averages seen in major corn producing countries like South Africa. Local corn research scientists have also indicated that eight or more higher-yielding corn strains are also in development
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting:The Baltic Indices continued their rally upward this week. Again, the move was lead by strength in the Capesize market for iron ore and coal. The Dry Bulk Panamax Index is not yet back at its yearly high (1,210 reached on March 25, 2013), but has climbed back to the levels of early March 2013. Logistics have also played a part. The total number of geared vessels waiting to berth in Brazil has climbed above 90 for the first time since October 2012. There are many more vessels waiting if you also include the non-geared vessels, but this will reduce the number of geared Handymax and Handysize vessels available to do other business.
Again, we continue to see better movement in the Baltic Indices than we do in the physical markets for grain freight. The small changes I made on the physical rates this week are mostly motivated by adjustments to the rate structure and spreads than strong moves in the physical markets.
Updated dry bulk new building deliveries to date in 2013 totaled 398 vessels, or 33.3 million dead weight tons (mdwt), according to SSY fleet data. These were split by vessel size as follows: 59 Capesizes of 12.9 mdwt, 129 Panamaxes of 10.6 mdwt, 116 Supramaxes of 6.6 mdwt and 94 Handysizes of 3.1 mdwt. This upward move in the Baltic Indices is wrongfully motivating vessel owners to continue to take delivery of, and order more, ships. No significant new news in the PNW grain elevator labor situation. The wheat harvest is progressing in the South and Central U.S., so we need to monitor the port situation closely.
The charts below represent Jan.-Dec. 2011 and 2012, annual totals versus Jan.- April. (2013) container shipments for Thailand.