Market Perspectives December 20, 2013

1. Chicago Board of Trade Market News

Outlook: The market’s attention will increasingly turn to South American weather as Argentine corn heads into pollination in the next few weeks. Argentine pollination will be slightly delayed and on less acreage than farmers initially intended because of a dry spell at the beginning of the season. The most threatening time for weather to become hot and dry is going into pollination.

U.S. Department of Agriculture Secretary Tom Vilsack is presently in Beijing, and is seeking a resolution to the Chinese concerns about an unapproved biotech strain. The Chinese are lagging behind the majority of other nations that have already granted their approval for the product. As a result, Secretary Vilsack has wisely encouraged a more synchronized approval process for biotechnology. Developing a more simultaneous approval process that is based entirely upon a science-based technique is an idea that seems to make the most sense for any global commodity. There simply are no long-term advantages for anyone when actions are based upon any other criteria, because any other criteria can cause merchandisers to lose profits and buyers to lose creditability.

The outlook going into the first quarter of calendar year 2014 is that more attention will be paid to South American weather, increasing efforts will be made to resolve Chinese concerns about biotech traits, and USDA will publish additional data on January 10 in which a potential yield increase could be partly offset by an increase in domestic feed and residual. Last, later data from USDA is generally expected to show a decline in U.S. corn acreage this spring.

2. CBOT Corn Futures

March 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 20-23 time period, a system is expected to bring some much-needed moisture to the Pacific Northwest. Additionally, heavy rains are expected across portions of the eastern southern Plains and into the middle Mississippi and Ohio Valleys. Others along the eastern Seaboard and up into New England can also expect to share in some of the moisture, although at more modest levels. Above-normal to well-above-normal temperatures are expected across northern California, Texas and the Gulf Coast region and from Florida northward into New England. Cold air looks to remain entrenched across the central and northern Plains along with the western Great Lakes region.

For the period of December 24-28, warmer temperatures are anticipated across California and the southern Atlantic Coast region from Florida up to the coastal Carolinas. Cooler temperatures are expected in the Pacific Northwest, Intermountain West, Mississippi Valley and Midwest, including the Great Lakes. Dryness seems to be in the cards for most, with below-normal precipitation likely across most of the West, central and southern Plains, Mississippi Valley and western Gulf Coast states. The southern Atlantic Coast states can expect above-normal amounts of the wet stuff, though. 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

U.S. Export Inspections
USDA Grain Inspections for Export Report

Corn: Net sales of 827,100 MT for 2013/14 were up 19 percent from the previous week and 2 percent from the prior four-week average. Increases were reported for unknown destinations (238,700 MT), Mexico (135,100 MT), China (124,000 MT, including 180,000 MT switched from unknown destinations, 60,000 MT switched to South Korea and decreases of 4,700 MT), Taiwan (99,300 MT), South Korea (62,400 MT, including 60,000 MT switched from China) and the Dominican Republic (59,000 MT). Decreases were reported for Guatemala (10,100 MT). Net sales of 45,200 MT for 2014/15 were reported for Japan. Exports of 693,400 MT were down 29 percent from the previous week and 20 percent from the prior four-week average. The primary destinations were China (245,500 MT), Mexico (115,700 MT), Colombia (88,100 MT), South Korea (63,000 MT), Japan (54,700 MT) and Peru (45,800 MT). Optional Origin Sales: For 2013/14, new optional origin sales totaling 55,000 MT were reported to South Korea. Outstanding optional origin sales total 155,000 MT, and are for Mexico (100,000 MT) and South Korea (55,000 MT)

Barley: Net sales of 500 MT were reported for Taiwan. Exports of 400 MT were to Taiwan (200MT. 

Sorghum: Net sales of 72,000 MT for 2013/14 were down 75 percent from the previous week and 60 percent from the prior 4-week average. Increases were reported for China (120,900 MT) and Japan (8,500 MT, switched from unknown destinations). Decreases were reported for Brazil (55,000 MT) and unknown destinations (2,400 MT). Exports of 12,300 MT were to Japan (8,500 MT) and China (3,700 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: DDGS merchandisers reported several important changes to price dynamics this week: First, the sudden decline in Chinese demand caused the inverted condition of DDGS prices to decline so that the nearby prices are no longer as elevated in relation to forward prices. Second, shipping lines are implementing General Rate Increases (GRIs). (Please note that this this section has been warning about the evolution of higher freight rates for some time and now such events seem to be transpiring).

It is unknown if inverted price conditions will return once Chinese buying resumes. However, DDGS merchandisers report that there are presently lots of inquiries from Chinese buyers who are anxious to keep a handle on market conditions. Presumably attributable to the momentary lull in Chinese buying is the fact that the California market feels a little softer in nearby prices, but steady in the deferred market.

Domestic DDGS prices were down early in the week but worked back up as the week progressed. This rebound happened in part because the early price weakness spurred many domestic end-users to lock in supplies through the first quarter of calendar year 2014. Various foreign buyers also secured pricing through the first and second quarters of next year. As a result, a number of ethanol plants claim they are sold out of DDGS through January.

Ethanol Comments: The price of ethanol, like any other commodity, is heavily influenced by available stocks. Total U.S. ethanol stocks are sufficiently tight that the price of ethanol is similar to last year even though corn input costs have declined. The result of a stable price and reduced cost is an improved profit margin for ethanol facilities. The improved margins should encourage greater production that eventually allows domestic stocks to rebuild. However, that point has still not been achieved as U.S. ethanol stocks are now reported to be a full 25 percent below last year. It seems that global buyers have an appreciation for U.S. ethanol.

It is unfortunate that demand for U.S. ethanol can appear more consistent than does U.S. biofuel policy, but industry participants presently have no reason to be overly concerned. Congressional opponents of the Renewable Fuels Standard (RFS) lack the support and positions to implement legislation that will reverse policy in the foreseeable future. EPA did make adjustments to account for the 10 percent blend-wall, but foreign demand has consumed any excess production and then some. If global crude oil production expands, then there could be points in the future when ethanol prices periodically decline in order to keep export channels open, but such price action is not a threat. The differentials between corn and the co-products values declined this week across the Corn Belt, but the decline was from outstanding to great:

• Illinois differential is $3.97 per bushel in comparison to $4.50 the prior week and $1.21 a year ago.
• Iowa differential is $3.40 per bushel in comparison to $4.25 the prior week and $1.17 a year ago.
• Nebraska differential is $3.08 per bushel in comparison to $3.87 the prior week and $1.53 a year ago.
• South Dakota differential is $3.60 per bushel in comparison to $4.34 the prior week and $1.34 a year ago.

As touched upon earlier, ethanol stocks of 15.6 million barrels were 25 percent below the year-ago level of 20.8 million barrels. Ethanol production declined for the week ending 12/13 to 928,000 barrels per day (bpd), in comparison to 944,000 bpd the week before. The production level for the same week a year ago was 822,000 bpd.

7. Country News

China: China has affirmed that it will be continue to reject corn shipments containing the GM MIR 162 strain, according to Bloomberg News. MIR 162 has still not received a definitive safety certification from the Chinese government. 12 cargoes of U.S. corn containing MIR 162 totaling some 545,000 MT were rejected on December 19. This rejection comes at a time when China has placed a record order for 5.9 MMT of corn for importation this year.

Ghana: The government of Ghana has announced its intent to adopt GM technology to improve the country’s agricultural production, according to WPI. While the government has yet to map out how exactly it wishes to achive this goal, a government minister has been quoted as saying that senior staff changes will be required in order for the country to have a more scientific approach to advances in agricultural technology.

Kenya: The Kenyan government has announced that a new strain of corn seed that is resistant to maize lethal necrosis will be available to farmers in 2014, according to WPI. This seed is currently being grown by Kenyan farmers under a government contract and should be available for distribution by the start of the next growing season. However, some experts are concerned that the new strain will not be as effective against the disease in real world conditions as it has been in laboratory tests.

South Africa: Corn prices for march delivery in Africa’s largest producer climbed again this week, reports Bloomberg News. Yellow corn is now $249.39/MT, while white corn stands at $257.45/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: In this market, what goes up does not stay up for long. The market rally of the last three weeks has come to an end as the holiday period approaches. I guess those who needed to get coverage before leaving on holiday did. You will notice a big range in values in the below Capesize vessel rates from West Australia to China, but the fact of the matter is that rates closed out the week at the lower end of the range. Even the Handysize market finally topped and set back a little this week. This capped a three-month rally for the Handysize vessel index.

Aside from the Western holidays, the Chinese New Year (the year of the Horse) comes early this year on January 31, which means that the two-week celebrations in Asia will also start soon. Businesswise things should get fairly quiet fairly quick.

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 China.

International Freight Rates for Feed Grains

10. Interest Rates

Interest Rates