Market Perspectives December 6, 2013

1. Chicago Board of Trade Market News

Outlook: USDA will publish their WASDE report on Tuesday, December 10. Market participants are uncertain about the contents of this particular report and there is a wide range between estimates of analysts. This fact increases the prospects of an aggressive price reaction once the data is published.

A good deal of bearish news has recently been factored into corn futures, such as EPA’s potential reduction of the ethanol mandate, Chinese rejection of corn shipments containing trace amounts of the unapproved variety MIR162 and technical chart weakness. Bearish traders need some fresh news to continue driving the corn futures lower and a substantial increase in the yield estimate could give them what they are looking for, but any such adjustment to yields is not expected in Tuesday’s WASDE. Instead, the final corn yield estimate will be published on January 10, 2014.

There is also potential for a number of more bullish factors. These include an increasing in global ending stocks for feed grains because of recent reductions in South American corn planting. The estimate for U.S. corn ending stocks could also decline in Tuesday’s WASDE due to a strong export pace and healthy domestic demand from profitable ethanol and livestock feeding industries. Lastly, speculative funds continue to hold a large short position. The combination of market conditions are such that it appears easier for next Tuesday’s report to spark a limited short-covering rally than a continued sell-off.

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: During the December 6-9 time period, precipitation is forecast along much of the eastern U.S., from the Southern Plains extending into New England. An above-normal chance of precipitation is also present across areas of the West, particularly in the Southwest. Temperatures are expected to be below-normal across the country, with the exception of the East Coast during this time.

For the period of December 10-14, the odds favor above-normal temperatures in the Southeast. Normal to below-normal temperatures are favored across the rest of the CONUS and in southern and central Alaska. Above normal-precipitation is likely across most of the eastern third of the country, in northern Alaska, and from the Pacific coast, through the Rockies and into the northern Plains. The eastern Southwest and the Central and Southern Plains, as well as the southwestern Midwest are likely to see below-normal precipitation. 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 593,600 MT for 2013/14 marketing year were reported for China (362,600 MT, including 306,000 MT switched from unknown destinations and decreases of 4,000 MT), South Korea (123,000 MT, including 60,000 MT switched from unknown destinations), Cuba (100,000 MT), Mexico (62,100 MT), Japan (34,000 MT) and Peru (30,000 MT). Decreases were reported for unknown destinations (158,800 MT) and Guatemala (1,900 MT). Exports of 1,042,100 MT were primarily to China (587,900 MT), Mexico (172,400 MT), Japan (130,200 MT), South Korea (66,900 MT) and Guatemala (20,900 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 300 MT were to Taiwan. 

Sorghum: Net sales of 6,200 MT for 2013/14 resulted as increases for China (7,000 MT), were partially offset by decreases for Japan (800 MT). Exports of 5,500 MT were to Japan (4,300 MT) and China (1,200 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: Foreign buyers of DDGS should have sufficient supplies of DDGS due to the current favorable margins of U.S. ethanol producers, a topic that is discussed in the ethanol section of this week’s report. However, it is also noted in the Outlook section that next week’s WASDE report (published by USDA) could influence futures prices. The prospects seem better for a limited bounce higher in corn prices rather than a continued sell-off.

Logistical costs are once again a topic that DDGS merchandisers have brought up for discussion. Ethanol facilities are finding it easier to secure their corn needs as harvest winds down and trucks become more available, though containers are starting to become more difficult to procure. In addition to General Rate Increases (GRI’s) charged by international transportation companies, DDGS shippers are also having to pay more to find a container line that has the necessary equipment – especially in Chicago. The reason for this is because shipping lines have engaged their winter deployment strings which results in an overall reduction in capacity during the slack season. Consequently, any reduction in DDGS price could be offset by an increase in logistical rates. The most advantageous strategy in present market conditions seems to be for the buyer to work in conjunction with the merchandiser in arranging long-term volume in order to obtain more favorable container rates from logistical companies.

Ethanol Comments: Strong domestic and export demand is implied in the inverted ethanol prices and limited stock levels. Data about the rate of U.S. ethanol exports continues to lag behind because it is not reported in the weekly energy market data produced by the Energy Information Administration. Instead, ethanol exports data is reported by the U.S. Census Department and has a significant lag.

The combination of export and domestic demand for ethanol seems impressive because production continues at relatively high levels and stocks are not rebuilding. U.S. ethanol production totaled 913,000 barrels per day (bpd) for the week ending November 29. That was a modest decline from the prior week’s production level of 927,000 bpd but 9.4 percent above the year-ago production level of 835,000 bpd. Yet, the total U.S. ethanol stocks of 15.1 million barrels were 21.8 percent below the year ago stocks level of 19.3 million barrels. Further evidence of strong demand is the fact that the differentials between corn and the co-products values are more than double the year-ago levels cross the Corn Belt:

• Illinois differential is $4.81 per bushel in comparison to $4.62 the prior week and $1.65 a year ago.
• Iowa differential is $4.32 per bushel in comparison to $4.28 the prior week and $1.18 a year ago.
• Nebraska differential is $3.80 per bushel in comparison to $4.01 the prior week and $1.62 a year ago.
• South Dakota differential is $4.48 per bushel in comparison to $4.49 the prior week and $1.46 a year ago.

7. Country News

Australia: The Australia Bureau of Agriculture has reported that the barley harvest will surpass an earlier September estimate of 7.7 MMT and may total some 8.6 MMT this year, according to Bloomberg News.

China: China is still evaluating a cargo of U.S.-sourced GMO corn, reports Reuters. The strain in question is Syngenta MIR162, which China was originally expected to approve for importation in March 2012. The strain has been approved in Japan, South Korea, Russia and the EU.

France: Tunisia has purchased 100,000 MT of French feed wheat and 75,000 MT of barley, reports Reuters.

Japan: The Ministry of Agriculture announced that it received no bids for the importation of feed wheat and barley in a tender that closed Wednesday, according to Reuters. The government sought 120,000 MT of feed wheat and 200,000 MT of feed barley and will seek the same amount in a tender to be held on December 11.

Ukraine: China and Ukraine signed an agreement that could bring Ukraine $8 billion in investments, according to Reuters. The agricultural aspect of the agreement focused on ensuring a steady supply of Ukrainian barley, corn and wheat to the Chinese market.

Zimbabwe: Reduced production in tandem with droughts and floods have cause a critical food shortage in Zimbabwe, reports Bloomberg News. Corn production has fallen to 800,000 MT, which is down from 1.4 MMT two years ago. Grain prices have jumped to 53 cents per kg, which is up from 33 cents per kg one year ago. The government has imported 130,000 MT of corn since May from South Africa, while Zambia has pledged to export 150,000 MT to the country

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

Given the U.S. holiday, this will be an abbreviated report.

World ocean freight markets seemed to find a temporary bottom and bounce off of it this week. Capesize and Panamax markets were slightly higher. Handysize and Handymax markets remain hot and continue to rise with the heat.

Much of the support appears to be coming from improved U.S. Grain exports. This is particularly true for the Handysize and Handymax markets. In viewing this week’s freight fixtures and the Panamax forward curve chart, you will notice that the market is still inverted and that the optimism in the spot and 30-day market is not carrying over into the forward positions for January-February.

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 Vietnam.

International Freight Rates for Feed Grains

10. Interest Rates

Interest Rates