Market Perspectives November 8, 2013

1. Chicago Board of Trade Market News

Week in Review

Outlook:USDA’s November data was not as bearish as the market had expectated and there is no justification for a continued sell-off in U.S. corn prices. The average U.S. corn yield increased from the September estimate of 155.3 bushels to 160.4 bushels per acre. Offsetting much of that increase was a reduction in harvested acres from 89.1 to 87.2 million acres. The result is that production only increased by 146 million bushels. Beginning stocks for this season were increased by 163 million bushels, but that was offset by a 175 million bushel increase in exports and 100 million bushel increase in feed consumption. The final result is that corn ending stocks for the 2013/14 season were increased by 32 million bushels, and such a limited increase does not justify further price erosion.

A large number of speculative traders seem to have already determined in their minds that corn contracts are destined go lower. There seemed to almost be an attempt to muscle the nearby December contract lower, but end-users embraced their selling at present price levels and the daily trading volume in the December contract exploded to almost 350,000 contracts. It will be interesting to see how speculative traders attempt to exit their record short position in the December contract over the next month.

2. CBOT Corn Futures

December Corn Futures

CBOT Table

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress


U.S. Drought Monitor Weather Forecast: The NWS HPC Seven-Day Quantitative Precipitation Forecast (QPF) calls for moderate- to- heavy precipitation across the Pacific Northwest. Mountain snow is expected in the northern Sierras (CA), Cascades (OR/WA), Sawtooths (ID), Bitteroots (MT) and Tetons (WY). Modest precipitation totals (less than one and a half inches) are expected from eastern Texas extending northeast through the Mississippi Valley, Upper Midwest and Northeast. The ten-day outlooks call for a high probability of above-normal precipitation and below-normal temperatures across the Pacific Northwest, Northern California and Northern Rockies. In contrast, above-normal temperatures are expected over the southern half of the United States with the exception of southern California. Above-normal precipitation is also expected across the Great Plains, Midwest and South Florida. 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

Export Sales and Exports
U.S. Export Inspections
USDA Grain Inspections for Export Report

Corn: Net sales of 1,718,600 MT for 2013/14 were reported for Japan (382,400 MT, including 76,000 MT switched from unknown destinations and decreases of 9,000 MT), unknown destinations (330,600 MT), South Korea (308,200 MT), China (289,400 MT, including 55,000 MT switched from unknown destinations and decreases of 6,700 MT), Mexico (221,100 MT) and Egypt (110,000 MT). Exports of 710,200 MT were primarily to Mexico (295,400 MT), China (194,100 MT), Japan (132,700 MT), Colombia (38,300 MT) and Indonesia (22,600 MT). Optional Origin Sales: For 2013/14, outstanding optional origin sales total 100,000 MT, all Mexico.

Barley: There were no sales reported during the week. Exports of 200 MT were to Taiwan.

Sorghum: Net sales of 18,800 MT for 2013/14 were for Japan (20,500 MT, including 10,700 MT switched from unknown destinations). Decreases were reported for unknown destinations (1,700 MT). Exports of 29,800 MT were to Japan (29,700 MT) and Mexico (100 MT). 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: USDA published their highly anticipated production estimates today, and the data gave no justification for U.S. corn prices to continue trending lower. This fact is a disappointment to bearish traders who were almost entirely dependent upon this report to drive prices lower, as 1) the cash basis had already stabilized due to strong domestic demand, 2) corn exports have been enormous for the past few weeks, and 3) a large number of farmers have decided to place their grain in storage rather than market during harvest.

Foreign DDGS buyers should note the fact that DDGS merchandisers are presently looking at a corn market which has little additional downside left. Perhaps even more important is the fact that at domestic logistic markets where resources are tight and prices have increased, domestic truck and rail companies seem to understand that they currently have the upper-hand. One way that DDGS merchandisers can attempt to regain some leverage is by offering higher volumes of freight movement. Consequently, it may be mutually beneficial for DDGS buyers and merchandisers to discuss the prospects of larger-than-normal purchases in order to lock in present corn prices and more favorable freight rates.

The U.S. truck market is particularly tight, and one merchandiser was told by a freight company that the tight logistical situation may not improve before the year’s end. A different merchandiser reported that buyers are focused primarily upon the price of DDGS, and many are less aware of how tight the logistical situation has become. The availability of loading equipment and containers in the Midwest continues to cause headaches that may impact on-time loading. Of course, customers need shipments to sail on time because the arrival date can influence the final price. Being able to offer large volume movement increases the negotiating ability of the merchandisers.

Ethanol Comments: In today’s WASDE, USDA left the corn use for ethanol and co-products unchanged for the 2013/14 season at 4.9 billion bushels. That estimate makes sense, with the most recent ethanol production levels of 902,000 barrels per day (bpd). That was a slight reduction from the prior-week level of 911,000 bpd, but above the year-ago domestic production level of 827,000 bpd. However, it is important not to forget to tack on an additional 60,000 bpd of ethanol imports to that year-ago figure. Furthermore, greater usage seems evident in total U.S. ethanol stocks data from the Energy Information Administration (EIA). Present ethanol stocks of 15.2 million barrels are 16.4 percent below last year’s levels.

The recent favorable margins of ethanol producers and the prolonged period of total U.S. ethanol stocks remaining below last year’s levels has been sufficient incentive to restart several ethanol plants, which are coming back online as declines are occurring to ethanol producer margins.

Recent reductions in ethanol producer margins are primarily attributable to weakness in ethanol prices rather than returns from DDGS. Returns for ethanol facilities in Illinois, Iowa and Nebraska declined as ethanol dropped from 17 to 23 cents per gallon. However, there was actually a slight increase in the value of DDGS at plants in Illinois and Iowa. Ethanol producer returns remained unchanged in South Dakota as prices were stationary for both ethanol and DDGS. USDA’s reported difference between corn and the co-products values are as follows for the week ending November 8:

• Illinois differential decreased to $2.64 per bushel, which is down from $3.16 the prior week but above $1.49 for this same week a year ago.
• Iowa differential decreased to $2.28 per bushel, which is down from $2.68 the prior week but above $1.24 for this same week a year ago.
• Nebraska differential decreased to $1.88 per bushel, which is down from $2.55 the prior week but above $1.54 for this same week a year ago.
• South Dakota differential remained unchanged at $2.88 per bushel, which is above $1.40 for this same week a year ago.

7. Country News

Brazil: The governmental agency, Conab, projects that Brazil will bring in 78.5-79.8 MMT of corn in 2013/14, reports Reuters. These totals are up from the 78.4-79.6 MMT predicted last month. Conab reduced its outlook for 2012/13 to 81 MMT, which is down from 81 MMT predicted earlier.

China: The Chinese government has approved corn imports from Brazil as that country tries to allieviate a large supply surplus, according to Reuters. This move has followed a recent trend on the part of the Chinese government to diversify its corn imports away from a near total reliance on the U.S. China allowed imports from Argentina in August of this year. China is expected to import 7 MMT in 2013/14, which is up from 3 MMT in 2012/13.

European Union: The corn harvest in Western Europe is smaller than originally hoped due to poor weather throughout the growing period, reports Reuters. This disappointing turnout stands in stark contrast to the bumper harvests that are expected in places like the U.S. and Ukraine, which compounds the woes of European farmers as prices are dragged down to their lowest points in three years.

France: French barley exports have increased by 65 percent to 738,973 MT while corn exports have fallen by 25 percent to 298,456 MT, according to Bloomberg News.

Japan: The Ministry of Agriculture has announced that it will import 115,000 MT of feed barley via a simultaneous buy and sell auction that closed on Wednesday, reports Reuters. The tender had sought 200,000 MT of feed barley and 120,000 MT of feed wheat. Japan will seek the same quantities in another tender to be held on November 13.

South Africa: Yellow corn futures in Africa’s largest corn producer rose for the first time after a four-day slump, reports Bloomberg News. Yellow corn for December delivery rose to $228/MT. 

8. Ocean Freight Markets and Spread

Bulk Freight Indices for HSS

9. Ocean Freight Comments


Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: World dry-bulk ocean freight markets continue to struggle with a basic oversupply of vessels. Over the past few years, the market has staged a rally in the November-December period and vessel owners are hoping for a repeat of that scenario. However, I’m not sure their wish is going to be granted this year. The Capesize market does seem to have stabilized with Western Australia iron ore rates to China holding at close to $9.00/MT. However, there has been no such support in the Panamax sector, which continues to suffer a lack of strong demand and no help from the Capesize market. Keep in mind that the big Panamax market rally back in September-October was primarily fueled by demand needing to split Capesise bulk cargoes, which this is no longer the case. Average daily hire rates in the Capesize market are now $20,148/day verses $12,731/day for Panamax vessels. In sharp contrast, the Handymax vessel market has shown continued strength since last August.
Baltic Panamax Dry-Bulk Indices
Below is a recent history of freight values for Capesize vessels of iron ore from Western Australia to China:
Capesize Iron Ore
U.S. Asia Market Spreads

The charts below represent January-December 2011 and January-December 2012 annual totals versus January-September 2013 year-to-date container shipments for Korea.

International Freight Rates for Feed Grains

10. Interest Rates

Interest Rates