Market Perspectives January 17, 2014

1. Chicago Board of Trade Market News

Week in Review

Outlook: USDA published data on January 10 that was more bullish for corn than soybeans. This data and present market dynamics have put large speculators into a rather uncomfortable situation because they have established a major position that is primarily long soybeans and short corn. There presently appears to be some reluctance to lighten up on this position because speculators started once again selling corn after the March contract rebounded back toward $4.30 per bushel. As a result, the March contract has notched steadily lower throughout this week.

There are prospects for moisture conditions in southern Argentina to improve, which is important as the corn crop transitions into crucial developmental stages. Last week’s data from USDA has already reduced Argentine production by 1 MMT following December heat and dryness. Market Interest in South American weather could intensify if expected moisture disappoints in the next two weeks.

There is some market discussion that impending South American soybean production and increased soybean acreage in North America could weigh on near-term soybean prices. Additionally, declining soybean contracts could negatively influence the price of corn futures contracts. However, the 2013/14 U.S. corn crop is expected to have a carry-out of 1.631 billion bushels and the export sales pace is about 80 percent of the annual forecast, in comparison to a five-year average that is normally closer to 60 percent for this time of year. There have been some significant cancellations by China but that corn has been rerouted – not returned. The shipment pace of corn export sales from the United States is currently right in line with the five-year average.

There will need to be a substantial sell-off in both soybeans and wheat to have sufficient influence to pull nearby corn contracts down below $4.00 per bushel. Aggressively selling the March contracts at $4.25 per bushel in hopes of driving it back down toward $4.10 does not make much sense. Rather, such action seems more indicative of large speculative traders being emotionally attached to short positions in corn even as their negative assumptions are lessened by developing market factors. The outlook for appending to an already large short position in corn is not attractive in the near-term.

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: 

Little, if any drought relief is expected from the Plains to the Pacific Coast states, with precipitation during the upcoming monitoring period mostly confined to the northeastern quarter of the nation. A stronger-than-normal ridge of high pressure will span from the Canadian Rockies into the Southwest, maintaining dry, warmer-than-normal weather across much of the west. Temperatures will regularly top the 60 degrees mark as far north as the central High Plains, and will exceed 80 degrees in the Desert Southwest.

Farther east, a modest surge of cool air into the eastern one-third of the U.S. will be followed by another round of below-normal temperatures across the Midwest and East Coast toward week’s end. On Wednesday night and Thursday, a high-wind event can be expected across the northern and central Plains and the western Corn Belt, while blizzard conditions will affect the Red River Valley. The NWS six- to 10-day outlook for January 21-25 calls for near- to below-normal temperatures from the Mississippi Valley to the East Coast, while warmer-than-normal weather will continue from the Pacific Coast to the Plains. Meanwhile, near-normal precipitation from the Great Lakes region into the Northeast will contrast with drier-than-normal conditions across the remainder of the country. 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 821,000 MT for 2013/14 were up noticeably from the previous week and 26 percent from the prior four-week average. Increases were reported for Egypt (265,500 MT), Japan (248,100 MT, including 64,900 MT switched from unknown destinations and decreases of 56,300 MT), Mexico (195,700 MT), Taiwan (63,500 MT) and South Korea (58,900 MT). Decreases were reported for China (169,800 MT) and unknown destinations (15,800 MT). Exports of 674,500 MT were up 12 percent from the previous week, but down 23 percent from the prior four-week average. The primary destinations were Japan (226,100 MT), Mexico (148,900 MT), South Korea (58,800 MT), Egypt (41,500 MT), and Colombia (34,900 MT). 

Optional Origin Sales: For 2013/14, outstanding optional origin sales total 55,000 MT, all South Korea.
Export Adjustments: Accumulated exports to China were adjusted down 58,728 MT for week ending October 31, 2013. South Korea is the new destination for these shipments and is included in this week’s report. Accumulated exports to China were adjusted down 62,001 MT for week ending November 21, 2013. Japan is the new destination for these shipments and was adjusted in the week ending November 21, 2013 report.

Barley: There were no sales or exports reported during the week.. 

Sorghum: Net sales of 230,300 MT for 2013/14 were for China (164,800 MT), unknown destinations (58,600 MT) and Japan (6,900 MT, including 6,200 MT switched from unknown destinations). Exports of 75,300 MT were to China (60,300 MT) and Japan (15,000 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: In relation to DDGS market prices this past week, prices have stabilized. Merchandisers report that Vietnamese buyers are making active inquires as U.S. corn prices currently appear to be plateauing into a trading range. The preceding Outlook section discussions the assumption by some market participants that corn futures contracts could drift back down, but it also notes the possibility that disappointing South American weather in the next two weeks could trigger an additional increase in corn futures contracts – which would presumably influence DDGS prices.

Ethanol Comments: Week-to-week ethanol stocks were reported to be unchanged at 16.1 million barrels, which is down 21 percent below year-ago levels. Consequently, ethanol producer margins remain favorable. The differentials between corn and the co-products values for the week ending January 17, 2014 were lower in the four areas of the Corn-Belt, but all are well above year-ago levels:

• Illinois differential is $4.31 per bushel in comparison to $4.40 the prior week and $1.12 a year ago.
• Iowa differential is $2.79 per bushel in comparison to $3.00 the prior week and $1.11 a year ago.
• Nebraska differential is $2.98 per bushel in comparison to $3.06 the prior week and $1.47 a year ago.
• South Dakota differential is $3.21 per bushel in comparison to $3.25 the prior week and $1.50 a year ago.

7. Country News

China: The Ministry of Agriculture has announced that it still does not have a timetable for the commercialization of domestically developed GM crops, according to Reuters. Safety certificates for GM rice and corn were first issued in 2009, but so far the government has refused to authorize any commercial production. This inaction has engendered criticism from China’s scientific community because the delay has not only widened China’s growing food gap, but has also cost billions of yuan in research over the past decade.

European Union: The EU has announced that it expects total grain production to reach 316.1 MMT in 2023, which is up from the 304.3 MMT harvested in 2013. The growing area is expected to remain steady at 57.8 million hectares (142.8 million acres), and will include an increase in soft wheat and corn acreage at the expense of durum wheat and barley. Grain consumption is projected to climb to 297.9 MMT, which is up from the 2013 level of 278.9 MMT. Corn output may total 79.3 MMT, which is up from 2013’s 64.5 MMT.

Japan: The Ministry of Agriculture has announced that it will import 42,740 MT of feed wheat and 29,505 MT of feed barley from a simultaneous buy and sell auction that closed on Wednesday, according to Reuters. 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 22.

South Africa: Yellow corn futures have hit a record high as traders actively tried to cover short positions, according to Bloomberg News. Yellow corn for March delivery rose 2.6 percent to $267/MT, which is the highest it’s been since trading began on the South African Futures Exchange in 1996.

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

The first two weeks of 2014 have not been good from a vessel owner’s perspective. All four vessel indices have trended lower and firm demand support has not yet surfaced. Iron ore shipments to China have slowed, Indonesia Bauxite exports have declined and now Colombia has placed restrictions on coal exports. This has not been good for vessel demand and has created a buyers’ market.

With Chinese economic growth still slowing, the next hope for market support will have to come from the South American grain and oilseed shipping season that is slowly getting underway. 

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