1. Chicago Board of Trade Market News
USDA published the June WASDE on Wednesday June 11, and the data it contains is neutral for corn and other feed grains. However, corn futures continued to temporarily drift lower due to continued favorable weather forecasts and the influence of modestly bearish data for wheat that was in the WASDE. Corn contract have since stabilized and attempted to gain some traction in order to work higher. The outlook is that the downside in corn futures prices will remain limited from present levels until USDA’s Acreage Report is published on June 30 and weather for the period of pollination becomes more certain.
The June WASDE left 2014/15 ending stocks unchanged for corn, sorghum and barley. Even though current growing conditions are favorable, the projected corn U.S. yield remains at 165.3 bushels per acre due to the offsetting influence of a slower-than-normal start to corn planting that lasted into mid-May. Globally, the projection for coarse grain supplies for the 2014/15 season was increased by 2.3 MMT due to the anticipation of higher corn production and beginning stocks. It is interesting to note that corn production was increased for both Ukraine and Russia. While total planted corn acreage is down in Ukraine, USDA did raise the projected production for both Ukraine and Russia on expectations that yields will improve due to the importation of improved seed types. The June WASDE’s projections for global coarse grain trade remain basically unchanged from the May estimates. The result of such factors is the primary reason for the outlook of limited downside in current corn prices.
3. U.S. Weather/Crop Progress
Heavy rains are likely across the Great Plains from Oklahoma to Minnesota (5.1 inches is the maximum forecast value over Iowa). Widespread rains are also forecast over the Southeast and Florida. Little-to-no precipitation is forecast from Arizona and Utah to the West Coast.
The period of June 17 -21 features enhanced chances for above-normal rainfall from the Mississippi Valley to the East Coast, except Florida. Odds for below-median rains are increased across much of the West, west of the Continental Divide and across portions of southern Texas. 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
Corn: Net sales of 409,700 MT for 2013/14 were down 26 percent from the previous week and 17 percent from the prior four-week average. Increases were reported for Japan (183,900 MT, including 79,100 MT switched from unknown destinations and decreases of 24,100 MT), Egypt (154,000 MT, including 20,000 MT switched from unknown destinations), Mexico (120,500 MT), Vietnam (55,300 MT, including 60,000 MT switched from unknown destinations and decreases of 4,700 MT) and Colombia (55,000 MT, including 40,000 MT switched from unknown destinations and decreases of 28,500 MT). Decreases were reported for unknown destinations (241,800 MT), Guatemala (11,200 MT) and South Korea (1,200 MT). Net sales of 105,500 MT for 2014/15 were reported primarily for unknown destinations (100,400 MT) and Nicaragua (5,000 MT). Exports of 1,070,500 MT were down 8 percent from the previous week and 5 percent from the prior four-week average. The primary destinations were Japan (318,500 MT), Mexico (197,700 MT), Egypt (119,800 MT), Taiwan (83,800 MT), Colombia (71,300 MT), South Korea (66,900 MT) and Vietnam (55,300 MT). Optional Origin Sales: For 2013/14, outstand ing optional origin sales total 123,000 MT, all South Korea.
Barley: Net sales for the 2014/15 marketing year, which began June 1, totaled 12,600 MT and were for Japan. A total of 1,700 MT in sales were carried over from the 2013/14 marketing year, which ended May 31. Exports for the period ending May 31 of 800 MT brought accumulated exports to 176,300 MT, up 33 percent from the prior year’s total of 132,700 MT. Exports for June 1-5 totaled 13,400 MT, all Japan.
Sorghum: Net sales of 117,000 MT for 2013/14 were up noticeably from the previous week and from the prior four-week average. Increases were for China (61,000 MT, including 58,000 MT switched from unknown destinations and deceases of 100 MT), unknown destinations (47,900 MT) and Japan (8,100 MT, switched from unknown destinations). Exports of 65,900 MT were reported to China (57,900 MT) and Japan (8,000 MT).
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Transitions in the DDGS market have generated substantial declines in price this past week and opportunities materialized to purchase domestic DDGS at prices $25 below those of the prior week and $40 lower in the containerized export market. These alterations to DDGS market conditions are not estimated to be permanent, but domestic end-users may consider adjustments to feed ratios for more DDGS.
Domestic buyers are striving to be patient and wait for some evidence that a bottom has formed in DDGS prices before stepping up to purchase. Those buyers seem to be keeping one eye on each other and recognize that present DDGS price levels offer a profitable pricing opportunity for animal production. The anticipated increase in domestic DDGS demand is foreseen to also benefit the domestic barge market and other bulk shippers.
Exported DDGS that were in transition to China seem to be finding ready access in other locations such as Korea and Indonesia. As present DDGS production is absorbed by alternative foreign locations and domestic consumption, it will be interesting to see if competition will eventually be necessary to purchase the increased DDGS flow back out of these channels. That future condition is currently unknown, but the one certainty is that DDGS can now be purchased at or below break-even levels.
Ethanol Comments: USDA left 2014/15 corn used for ethanol and DDGS production unchanged in the June WASDE at 5.050 billion bushels. This is exactly the same amount that is anticipated to be used in the current 2013/14 season. It seems apparent that USDA is not anticipating any major alterations for the U.S. ethanol sector and presumably recognizes that an ebb-and-flow of stock occurs. Total U.S. ethanol stocks have recently been increasing and the latest estimate is 18.4 million barrels for the week ending June 6. This is a slight increase above the prior-week’s production level of 18.3 million barrels. Average daily production for the week was 944,000 barrels per day (bpd) in comparison to the prior-week’s level of 938,000 bpd. Considering the recent decline in corn prices, this production increase is no aggressive escalation. Nor are the returns of ethanol facilities in a precipitous decline. This is implied by the differential between the cost of corn and the value of ethanol and DDGS at processing plants at facilities across the U.S. Corn-Belt.
The differentials between corn and co-product processing values for this week ending June 13, 2014 are as follows:
- Illinois differential is $3.53 per bushel in comparison to $3.64 the prior week and $2.21 a year ago.
- Iowa differential is $3.33 per bushel in comparison to $3.49 the prior week and $2.05 a year ago.
- Nebraska differential is $3.23 per bushel in comparison to $3.38 the prior week and $2.26 a year ago.
- South Dakota differential is $3.76 per bushel in comparison to $3.91 the prior week and $2.07 a year ago.
7. Country News
Argentina: A strike undertaken by workers at Rosario, Argentina’s largest agricultural exporting port, over a disagreement in wages has been called off after government arbitration, according to Reuters. The protest began on Monday and had held up 126 grain ships and had negatively impacted all of the port’s terminals. Rosario accounts for 80 percent of Argentina’s agricultural shipments.
France: French barley has been beset by “unprecedented” levels of the fungal disease yellow rust, according to Bloomberg News. While there is not yet an official estimate at what the damage to this year’s crop might be, FranceAgriMer has indicated that rust can impact yields by as much as 3-4 MT per hectare. The harvesting of winter barley is expected to begin in Burgundy this week, and barley grain ear development there was estimated at about 10 days ahead of the average seen in recent years.
India: India’s weather office has announced that monsoon rains arrived both a week late and 48 percent below average levels, reports Reuters. However, heavy rains will not be critical for the health of India’s crops until later in the season, around mid-July. Agriculture accounts for 14 percent of India’s economy, and only half of India’s farmland has access to irrigation. If poor rains persist, it could raise food prices and put negative pressure on the country’s economic growth. The Indian Meteorological Department estimates that there is a 33 percent chance that monsoon rains will be deficient, which is defined as rainfall that is less than 90 percent of the long-period average.
South Africa: Yellow corn for July delivery in Africa’s largest corn producing country has fallen to $183.93/MT, according to Bloomberg News.
Spain: Grain production in the Castile and Leon regions of Spain are projected to fall by 40 percent due to disease and poor growing conditions, reports Bloomberg News. Barley production is expected to fall to 1.88 MMT, which is a significant reduction from the 3.5 MMT brought in last year. The decrease is due to a combination of factors, including a very wet winter followed by very dry conditions in April and May and a major outbreak of fungal diseases rust and septoria.
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting:Vessel owners have to be asking if the market has hit bottom yet. After this week’s action it is difficult to say much more than things are feeling very weak, and that we must be close to bottoming out. World Panamax rates continued to sink, and with them the financial health of vessel owners and investors. It has been, and still is, a dramatic down cycle that no one was expecting. Just when you think it cannot go any lower, it does. This is truly the shipping recovery that wasn’t. We have not seen the Baltic Panamax Index at the 582 level since early October 2012. Capes are now getting $14,100/day and Panamax vessels about $5,300/day on long hauls.
This week’s excuses wrtr the holidays in Europe, but I don’t see how people can go on holiday unless they have all their business needs covered beforehand. So, it’s really a case of insufficient demand, and the market needs to recognize that and perhaps just stay on holiday until the money runs out. The gap between the bid and ask in freight markets is growing as many operators are holding back and hoping things will improve with time. However, they cannot hold their breath forever. What is trading is mostly for short voyages as operators are reluctantly willing to take a hit on the nearby business just to keep running with the expectation that things will get better on the next round. The physical Capesize market was stable this week, maybe that is a good sign?
According to a maritime CEO “The vast majority of ships on order today have no contractual employment and no evidential income other than indications of future ship values referenced back to the boom years of 10 years ago.”
“…If a shipowner cannot serve his existing bank debt, how is he going to service the new owners of the debt who have much higher expectations of return on their investments than simple bank margins”
Should we root for Brazil in the World Cup or be fearful that, if they win, the celebrations will disrupt port activities?
The charts below represent January-December 2013 annual totals versus January-May 2014 container shipments for Hong Kong.