Market Perspectives April 25, 2014

1. Chicago Board of Trade Market News

Week in Review
Outlook: The nearby May corn contract began this week by continuing to trend lower but the prospects of a return of cool temperatures and a fruther decline in winter wheat conditions allowed the May contract to rebound and return above $5.00 per bushel. Market participants presently seem to have limited interest in driving corn contracts much above the $5.00 level because there is still ample time to get a majority of the crop planted by May 15. However, attitudes are expected to become more bullish if weather forecasts remain cool beyond the end of next week.

Beyond planting weather in the U.S. Corn Belt, other lessor factors that can influence corn contract prices in the next few weeks are the expiration of the May corn contract, the importation of soy products from South America into the United States to help offset tight domestic meal stocks, the normal seasonal prices action as winter wheat harvest approaches, increasing South American grain exports and market reactions to tensions between Ukraine and Russia.

The diverse combination of price influencing factors could result in a roller-coast ride within an expanding horizontal range for corn contracts during the next month. It is entirely possible that corn contracts could be supported to higher next week, down the proceeding couple of weeks and then once again supported prior to pollination. Speculators, who already hold a sizable long position in corn contracts, are likely to simultaneously decide to either add to their length or to exit by selling. Either way, their combined actions are anticipated to influence the mid-summer price of corn contracts.

2. CBOT Corn Futures

CBOT May Corn Futures

CBOT Table

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

Crop Progress
U.S. Drought Monitor Weather Forecast: The NWS HPC Seven-Day Quantitative Precipitation Forecast (QPF) calls for frontal-low pressure systems to bring an inch or more of precipitation across a large part of the country, stretching from the eastern and northern Great Plains to the Appalachians, with three inches or more across parts of the Midwest to Deep South. Another area of two+-inch precipitation is projected for coastal Washington and Oregon, and parts of the northern Rockies, while the Southwest is expected to remain mostly dry. Temperatures for the April 25-30 period are predicted to be warmer than normal in the southern states ahead of the front, with colder-than-normal air from the north moving across the country behind the frontal systems.

The 10 day and 14 day outlooks indicate that an upper-level circulation pattern, consisting of a ridge over western North America and a trough over the east, is predicted to become entrenched during May 1-7, bringing colder-than-normal temperatures to the country east of the Rockies and warmer-than-normal temperatures to the West. This period should be drier-than-normal for the Southwest and Great Plains into the Midwest, and wetter than normal across the Southeast, Ohio Valley, Northeast, and part of the Pacific Northwest. 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 618,900 MT for 2013/14 were up 15 percent from the previous week, but down 30 percent from the prior four-week average. Increases were reported for South Korea (185,000 MT, including 115,000 MT switched from China and 60,000 MT switched from unknown destinations), Japan (168,900 MT, including 101,400 MT switched from unknown destinations and decreases of 5,200 MT), Colombia (133,400 MT, including 154,000 MT switched from unknown destinations and decreases of 17,200 MT), Saudi Arabia (115,000 MT, including 103,400 MT switched from unknown destinations), Egypt (91,600 MT, including 76,600 MT switched from unknown destinations) and Peru (52,600 MT, including 30,000 MT switched from Uruguay). Decreases were reported for unknown destinations (215,900 MT), China (54,000 MT), and Uruguay (30,000 MT). Net sales of 382,900 MT for 2014/15 were reported for Mexico (240,000 MT), Japan (91,400 MT) and unknown destinations (89,400 MT). Decreases were reported for Costa Rica (37,900 MT). Exports of 1,621,100 MT were up 55 percent from the previous week and 33 percent from the prior four-week average. The primary destinations were Japan (243,300 MT), Colombia (231,000 MT), Egypt (224,600 MT), Taiwan (205,100 MT), South Korea (183,500 MT), Mexico (170,300 MT) and Saudi Arabia (117,000 MT). Optional Origin Sales: For 2013/14, outstanding optional origin sales total 123,000 MT, all South Korea.

Barley: Net sales of 1,100 MT were reported primarily for Japan (1,000 MT). Exports of 400 MT were reported primarily to Taiwan (300 MT).

Sorghum: Net sales of 251,100 MT for 2013/14 were up noticeably from the previous week and from the prior four-week average. Increases were reported for China (244,800 MT, including 60,000 MT switched from unknown destinations and decreases of 3,100 MT) and Japan (8,400 MT). Decreases were reported for unknown destinations (2,000 MT). Exports of 255,900 MT--a marketing-year high--were up 98 percent from the previous week and up noticeably from the prior four-week average. The primary destinations were China (238,300 MT) and Japan (17,500 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: Domestic demand for DDGS picked up as barge movement has increased. Barge demand is presently in competition against the truck, rail and container demand for available DDGS. The expectation is that this additional demand could stabilize prices until about June. After that DDGS prices will be primary influenced by the price action of corn contracts. Please see the Outlook discussion for more details about future price action.

A recent opportunity for better DDGS pricing was presented as corn contracts sold off last week into the first part of this week. Containerized freight rates also declined, by approximately $10 per metric ton, to various Asian locations such as the Philippines, Malaysia, Indonesia and Taiwan. The current reduced demand from Chinese buyers is presumably one major factor for these lower rates. Local rail rates have not necessarily come down to the same extent, but DDGS merchandisers can work on the buyer’s behalf if they are given sufficient time.

Buyers from Southeast Asia and domestic buyers of DDGS have both been able to benefit from the recent reductions in DDGS prices. Merchandisers report that Chinese buyers are asking for quotes for the August forward time period. As a result, both domestic and Southeast Asian buyers may wish to discuss covering their own needs in that time period while the existing opportunity presents itself.

Ethanol Comments: Market discussion is that prospects look good for the U.S. Environmental Protection Agency (EPA) to slightly increased the final RFS requirements for 2014 from 13.2 to 13.5 billion gallons. The size of the increase is not nearly as important at the precedence of making an increase. The EPA’s decision relating to this issue is likely to be released some time in June.

U.S. weekly ethanol production backed off to an average rate of 910,000 barrels per day (bpd) from the prior week’s level of 939,000 bpd. A difference between the two weeks is that in the latter week production increased and stocks shrank while the opposite happened in the former week ending April 18. Stocks for week ending April 18 increased up to 16.5 million barrels from the prior week’s level of 16 million barrels. That fairly sizable increase is still 6.1 percent below the year-ago level of 17.6 million barrels, but the annual percentage difference is shrinking. Ethanol imports have returned, at an average rate of 11,000 bpd, and are contributing to the increase in stocks.

Ethanol production is likely to continue at the present rate as the differential between corn and the co-products implies that ethanol producers are continuing to enjoy very favorable margins. The differentials for the week ending Friday, April 25 2014 are as follows:

• Illinois differential is $4.29 per bushel, in comparison to $4.89 the prior week and $2.54 a year ago.
• Iowa differential is $3.92 per bushel, in comparison to $4.17 the prior week and $2.14 a year ago.
• Nebraska differential is $3.64 per bushel, in comparison to $3.89 the prior week and $2.53 a year ago.
• South Dakota differential is $4.20 per bushel, in comparison to $4.72 the prior week and $2.36 a year ago.

7. Country News

Canada: Statistics Canada unveiled a report this week indicating that Canadian farmers will plant 11 percent less barley this year, according to Bloomberg News.

India: India will likely experience a below-average monsoon this year due to the effects of El Nino, accourding to Reuters. Reduced rainfall could hit India’s corn growing region and raise the country’s already high food inflation rate that currently stands at 9 percent. Agriculture accounts for more than half of India’s workforce, and the government has plans to expand irrigated farmland in an effort to stave off the economic threat of low precipitation.

South Africa: Corn production estimates have been raised by 0.6 percent, reports Bloomberg News. Farmers are predicted to harvest 13.03 MMT of corn, which is up from last month’s forecast of 12.95 MMT and 11 percent above the 11.7 MMT brought in last year. This crop may be South Africa’s largest since 1981 when it produced 14.1 MMT. Yellow corn production has been raised by 0.3 percent to total 5.96 MMT. Yellow corn for July delivery has declined by 0.3 percent to $206.35/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: It was a better week in world freight markets from the perspective of a vessel owner or operator, at least from the standpoint that things did not decline further and did show slight improvement in the Baltic Indices. It was not, however, enough of a bump to improve the bottom line of most vessel owners. Hopefully, things have bottomed out for the time being. As you will note below; Genco Shipping & Trading Limited (NYSE: GNK), with 53 Dry-Bulk vessels, filed for bankruptcy earlier this week. So it is obvious that the overall financial environment for vessel owners remains quite difficult.

Capesize vessels are now earning about $9,100/day and Panamax vessels only $6,700/day. Grain vessel line ups in the USGulf are declining and Grain vessel wait times in Brazil are down about 30 % from this time last year.

I understand that the first Panamax vessel with Brazilian soybeans completed unloading at a mid-stream rig in the Mississippi River last week and that a second Panamax soybean vessel is currently discharging via mid-stream rig into barges. The month of May should see the arrival of additional Handymax vessels of Brazilian Soybeans coming into the U.S. East Coast and the Gulf. Trade estimates are that we could see close to 1.5- 2 MMT of Brazilian YSB imported into the U.S. this year and SBM as well.
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 2013 annual totals versus January 2014 year-to-date container shipments for South Korea.

South Korea 2014
South Korea 2013
International Freight Rates for Feed Grains

10. Interest Rates

Interest Rates