Market Perspectives January 10, 2014

1. Chicago Board of Trade Market News

Week in Review

OutlookUSDA released their annual production estimates for the current 2013/14 season. The average U.S. corn yield was revised downward to 158.8 bushels per acre after a more extensive analysis. This production estimate is below their prior yield estimate of 160.4 bushels. More importantly, it is below the average trade estimate of 161.1 bushels per acre. As a result, the report was considered bullish and many speculative traders who were holding short positions in corn seemed taken by surprise. Such a scenario can evolve when large numbers of market participants become heavily influenced by sentiment and place too much credence upon phrases such as, “big crops get bigger.” In contrast, USDA is publishing data that is the results of extensive analysis. Records corn yields did occur in 13 states, but the overall United States average corn yield declined slightly.

The decline in the average corn yield estimate from 160.4 to 158.8 bushels per acre was not entirely offset by an increase in harvested acreage from 87.2 to 87.7 million acres. The result was a modest decline in total U.S. corn production from 13.989 to 13.925 billion bushels and a decline in ending stocks for the present 2013/14 season from 1.792 to 1.631 billion bushels. However, market participants were expecting an average ending stocks estimates of 1.844 billion bushel, which was reflected in the aggressive selling that occurred this week prior to today’s reports. USDA also released their estimate U.S. ending stocks on December 1 as 10.43 billion bushels, which was also modestly below the average of 10.77 billion bushel. The end result is that the nearby March corn contract turned and rallied more than 20 cents this afternoon as it becomes increasingly evident that there is little to no downside below the pre-report lows that occurred earlier this week.

2. CBOT Corn Futures

March Corn Futures

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

U.S. Drought Monitor Weather Forecast: During the period of January 10-13, a strong ridge appears primed to set up camp for the next couple of weeks, bringing better prospects for well above-normal temperatures across most of the country. The only notable exception is southwestern Colorado, where temperatures are expected to be slightly below the norm. A strong storm system could bring the first considerable widespread winter event to the Pacific Northwest, particularly the western halves of Oregon and Washington as well as the Idaho Panhandle. Good moisture is also predicted for the southern Plains (eastern Kansas, eastern Oklahoma and eastern Texas), Lower Mississippi Valley, Gulf Coast and the Southeast. The Northeast may also see some good precipitation materialize over this period. The Southwest and northern Plains look to remain dry.

For the period ofJanuary 14-18, the ridging pattern looks to remain entrenched bringing better odds of continued above-normal temperatures across the entire West and into the western Plains from Texas northward to North Dakota. New England is another region looking to share in the warmth. The Great Lakes and the Gulf Coast appear to be headed for below-normal temperatures. As for precipitation, this pattern tilts the odds toward below-normal for the West and central and southern Plains while the northern Plains, Great Lakes and the eastern Seaboard can expect a better chance of above-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 155,300 MT for 2013/14 were up 1 percent from the previous week, but down 79 percent from the prior four-week average. Increases were reported for Japan (100,200 MT, including 63,900 MT switched from China and 35,300 MT switched from unknown destinations), Mexico (70,700 MT), South Korea (55,000 MT, switched from China) and China (6,100 MT). Decreases were reported for unknown destinations (88,300 MT). Exports of 603,300 MT were down 29 percent from the previous week and 34 percent from the prior four-week average. The primary destinations were Japan (160,200 MT), China (155,600 MT), Mexico (151,000 MT), Saudi Arabia (63,100 MT) and Colombia (36,300 MT). Optional Origin Sales: For 2013/14, options were exercised to export 70,900 MT to Mexico from the United States. Outstanding optional origin sales total 55,000 MT, all South Korea. Export Adjustments: Accumulated exports to China were adjusted down 51,373 MT for week ending December 5, 2013. Japan is the new destination for these shipments and is included in this week’s report.

Barley: Net sales of 1000 MT were reported for Taiwan. Exports of 800 MT were to Japan (400MT) and Taiwan (400MT). 

Sorghum: Net sales of 600 MT for 2013/14--a marketing-year low--were reported for Mexico. Exports of 7,900 MT were to Mexico (6,300 MT) and China (1,600 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: 

The Census Bureau reports U.S. DDGS exports increased to a new monthly record in November 2013. The largest destination for U.S. DDGS during 2013 has been China but Japan, South Korea and Canada have all become major destinations in their own right. Various buyers in those locations have had an opportunity to take advantage of the recent setback in DDGS that occurred as market conditions became decidedly bearish prior to today’s release of USDA data. As discussed in the outlook section, today’s data was not nearly as bearish as many market participants were expecting and further downside for both corn and DDGS prices now seems limited.

Exports are important to the U.S. DDGS market and consume about 25 percent of total production. Of course, China has been and will continue to be an important player in that market, but merchandisers report that other international buyers have expressed interest in any inventory that Chinese buyers are unable to take at the moment. As well, domestic buyers are expressing a similar interest. After all, domestic beef producers remain the largest buyers of U.S. DDGS and consume a full 40 percent of total production. The domestic dairy market consumes slightly more than a quarter of all DDGS produced. Domestic poultry and swine each consume about 4-to-5 percent. Consequently, demand for DDGS has not declined; buyers are just seeking to obtain it lower prices. Buyers have been successful in obtaining lower prices for the past couple of weeks, but still even lower prices seem unlikely after the release of today’s USDA reports.

Ethanol Comments: U.S. ethanol exports in November were strong at 82.4 million gallons, which was the highest monthly export amount since March 2012. Canada remains the highest export destination but significant amounts also were sent to the Philippines, India, Norway and Brazil. Exports to Brazil are noteworthy because it implies that Brazil is unlikely to become a major competitor in the U.S. biofuel market so long as they are buying U.S. ethanol. The result is that imports of ethanol into the United States remain at zero. The rate of ethanol imports this time last year was 52,000 barrels per day for the week ending January 4, 2013.

Market related news stories this past week were somewhat excited about the fact that U.S. ethanol stocks had increased from 15.6 to 16.1 million barrels for the week ending January 3, 2014. The stories implied that this increase in ethanol stocks is bearish, but there was less emphasis on the fact that the total U.S. ethanol stock level of 16.1 million barrels is still 18.7 percent below the year ago level. As well, ethanol stocks grew in January of 2010, 2011 and 2012. Consequently, the increasing ethanol stock level during January 2014 is not necessarily an ominous sign. Of course, the gap between present ethanol stocks and the year-ago level will eventually narrow and producer returns will ebb and flow, but the industry remains healthy. The differentials between corn and the co-products values for the week ending January 10, 2014 were lower in three of four areas of the Corn-Belt but all remain well above year-ago levels:

• Illinois differential is $4.40 per bushel in comparison to $3.90 the prior week and $1.24 a year ago.
• Iowa differential is $3.00 per bushel in comparison to $3.70 the prior week and $1.15 a year ago.
• Nebraska differential is $3.06 per bushel in comparison to $3.63 the prior week and $1.43 a year ago.
• South Dakota differential is $3.25 per bushel in comparison to $3.47 the prior week and $1.49 a year ago.

7. Country News

Argentina: A damaging hot and dry December in the Pampas has been replaced with a wet January, and further forecasts call for the trend to continue into February, according to Reuters. However, the drought-like conditions have already caused irreversible damnage to the 2013/2014 corn crop. An analyst at the Buenos Aires Grains Exchange estimates this year’s corn crop at 20 MMT.

China: Chinese corn imports in the year to September are predicted to fall by 30 percent from earlier estimates because of the rejection of U.S. cargoes containing an unapproved GM strain, reports Reuters. The Shanghai JC Intelligence Co. Ltd has forecast that China will import 4.4 MMT of corn this marketing year, which is down from an estimate made last month of 6.6 MMT. China imported 2.7 MMT of corn in the previous marketing year and has rejected 600,000 MT of U.S. corn since November. USDA predicts that China will import 7 MMT of corn this year.

France: French barley exports in November 2013 fell to 122,599 MT, which is a 9.9 percent reduction from the November 2012 total of 311,258 MT. Corn shipments have also slipped by 0.7 percent to total some 625,660 MT.

Japan: The Ministry of Agriculture has announced that it will import 600 MT of feed wheat and 14,200 MT of barley from a simultaneous buy and sell auction that closed on Wednesday. The ministry had sought to purchase 120,000 MT of feed wheat and 200,000 MT of barley. It will be seeking these same amounts in another auction to be held on January 15.

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

It has been a very slow and soft start for 2014 ocean freight markets. If you are freight buyer; you are in the driver’s seat. Vessel owners are not getting the love they need from this market yet. Not mention that we still have the Lunar New Year holidays to go through in Asia.

There have been very few reported grain fixtures over the last ten days, so it is difficult to pinpoint any exact fair rates other than to say that things are generally lower with no support in sight.

In thin markets whoever needs to force something to happen will always pay the price and push the market one way or the other. 

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 Taiwan.

International Freight Rates for Feed Grains

10. Interest Rates

Interest Rates