1. Chicago Board of Trade Market News
Outlook: Thursday’s September WASDE was the first of the 2014/15 crop year for corn and sorghum (Sep/Aug). The report was considered bearish in the fact that USDA’s prediction for the average U.S. corn yield of 171.7 bushels per acre was one bushel larger than the average expected yield of 170.7 bushels. Each additional bushel that is added to the national average is expected to increase production by 83.8 million bushels. The combination of an average 171.7 bushels on 83.8 million acres is record U.S. corn production of 14.4 billion bushels. When beginning stocks and import are factored into the equation, the total amount of available corn in the U.S. market is expected to be a substantial 15.6 billion bushels. However, demand is also expected to be strong and the final ending-stocks estimate for the present 2014/15 season will be just over 2 billion bushels. A slight increase in exports would pull ending stocks back below 2 billion bushels, and that is possible.
USDA reduced the estimate for China’s corn production by 5 MMT because of dryness in key growing regions. USDA also reduced their estimate for Argentine corn production by 3 MMT. Hot and dry weather also caused production estimates to be reduced for Ukraine by 1 MMT and Russia by 500,000 MT. The end result is that USDA increased their forecast for U.S. corn exports, and it could increase more in the future because of present attractive price levels. Price action after the release of USDA reports seems to already indicate that market participants perceive a buying opportunity rather than justification for more aggressive selling. That could indicate that further downside in prices is limited in corn contracts.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: Over the next week, the precipitation pattern looks to be quite active and encompassing the eastern half of the United States. The greatest precipitation amounts are anticipated over the Midwest, southern Plains and Southeast, with projected amounts of up to 3.50 inches. The moisture plume over the Southwest looks to shift east over the next week with amounts of up to an inch in New Mexico, west Texas and Colorado. Temperatures will be cooler than normal over the High Plains, with maximum temperature departures of 12-15 degrees below normal forecast over Nebraska, South Dakota and eastern Wyoming.
The 10 day outlook shows the cooler-than-normal temperatures more likely over the eastern half of the United States. The best chances for above-normal temperatures are centered on the Great Basin and western United States. The projections show that most of the Midwest, New England, Plains, northern Rocky Mountains and southern Mississippi Valley have the best chances for below-normal-precipitation. Above-normal precipitation chances are greatest over the southeast and southwestern United States. 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 for the 2014/15 marketing year, which began September 1, totaled 563,200 MT. Increases reported for Mexico (127,100 MT), Japan (108,400 MT, including 57,900 MT switched from unknown destinations and decrease of 82,300 MT), unknown destinations (80,700 MT), South Korea (68,100 MT, including 63,000 MT switched from unknown destinations) and Costa Rica (52,700 MT), were partially offset by decreases for Colombia (22,900 MT) and Guatemala (12,700 MT). A total of 1,341,400 MT in sales were carried over from the 2013/14 marketing year, which ended August 31. Exports for the period ending August 31 of 507,500 MT brought accumulated exports to 47,375,100 MT, up noticeably from the prior year’s total of 18,044,200 MT. The primary destinations were Japan (244,200 MT), Mexico (119,500 MT), Saudi Arabia (71,500 MT), Honduras (31,800 MT) and Colombia (19,900 MT). Exports for September 1-4 totaled 695,500 MT, with Mexico (196,700 MT), Japan (142,900 MT), South Korea (133,100 MT), Spain (66,000 MT) and El Salvador (28,600 MT) being the primary destinations.
Barley: Net sales of 500 MT for 2014/15 were reported for Taiwan. Net sales of 25,000 MT for 2015/2016 were reported for unknown destinations. Exports of 600 MT were reported to Taiwan (500 MT) and South Korea (100 MT).
Sorghum: Net sales for the 2014/15 marketing year, which began September 1, totaled 208,300 MT. Increases were primarily reported for China (193,000 MT) and Japan (15,200 MT). A total of 362,900 MT in sales were carried over from the 2013/14 marketing year, which ended August 31. Exports for the period ending August 31 of 64,500 MT, all China, brought accumulated exports to 4,700,800 MT, up noticeably from the prior year’s total of 1,340,900 MT.
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: This week the DDGS market seemed to have lost its footing and gave back all the price stability of the past few weeks. Domestic rates were down from $5-10/MT and containerized export rates for DDGS averaged down an additional $20/MT. Yet, buyers seem to be remaining tactically patient despite the present opportunities. Vietnamese buyers purchased a limited amount of product for October shipment, but the overall sales pace for the October to December harvest period is below the normal seasonal rate. For example, one merchandiser reported that he usually has most of his October product book by this time period, but this season he has only about 40 percent sold. A similarly slow rate of sales is also being reported by domestic sales staff, with around 25-30 percent sold.
Rumors are relatively common when markets are slow. Having said that, a merchandiser reported that he was hearing rumors that one specifically large buyer has quietly returned to the market and is looking to make some purchases for October and November shipments for an unknown quantity. Of course, the “unknown” is what makes a rumor a rumor. Presently, one fact that is known is that China’s domestic corn prices are well above world price levels. Another know fact is that USDA just reduced their forecasted Chinese corn production for the present 2014/15 season by 5 million MT due to persistent summer dryness in key growing areas in the Northern Plain and Northeast. It is with such subtle developments in the market that DDGS buyers are struggling to decide when to be patient and when to take action.
Ethanol Comments: USDA increased the estimate of corn used for ethanol production during the 2014/15 season from the prior 5.075 billion bushels to a new September estimate of 5.125 billion bushels. Of course, ethanol producers will need a continuation of favorable margins for that increase to occur. Consequently, it does not seem entirely justifiable for market commutators to declare that the price of ethanol traded sharply lower this week in reaction to declining corn prices. There may be some influence but there is also a normal seasonal decline in ethanol prices during this time period. As well, total U.S. ethanol stocks are larger than a year ago. Unfortunately, that is an item that could become a pressing factor on the price of ethanol - particularly if ethanol exports slow.
The most recent total U.S. ethanol stocks figure is 18 million barrels. That is 10.8 percent larger than the year ago level of 16.3 million barrels. Current production of 927,000 barrels per day (bpd) is about 9.2 percent larger than the same week a year ago production of 848,000 bpd. Those production levels are likely to be adjusted soon if ethanol producer margins continue to decline at the rate that occurred this week. There was a large decline in the differential between the price of corn and price for ethanol co-products in all four of the reporting regions for week-ending Friday, September 12, 2014:
- Illinois differential is $2.94 per bushel in comparison to $3.58 the prior week and $3.54 a year ago.
- Iowa differential is $2.78 per bushel in comparison to $3.40 the prior week and $3.33 a year ago.
- Nebraska differential is $2.71 per bushel in comparison to $3.25 the prior week and $3.17 a year ago.
- South Dakota differential is $3.24 per bushel in comparison to $3.91 the prior week and $3.44 a year ago.
7. Country News
Argentina: Corn planting in Argentina is off to a good start with favorable weather. However, many farmers are concerned about low global prices and the fact that the government has yet to announce this year’s export quota, according to Reuters. Farmers are also expected to reduce the total area dedicated to corn planting by 700,000 hectares (16 percent) to 3.7 million hectares as high inflation has caused a spike in production costs.
Canada: An early frost in Alberta could potentially damage that province’s wheat and barley crop, reports Reuters. 39 percent of Alberta’s harvest had been brought in as of September 12, and it is believed that the frost could lower the crops’ grade quality and delay the remaining harvest, which is not seen as being a major setback.
China: China will likely harvest 2.2 percent less corn in 2014 following a major drought this summer in the country’s northeast, according to Reuters. The China National Grain and Oils Information Center has released an estimate that this year’s corn output will total some 213.8 MMT, which is a reduction of 8.5 MMT from its August estimate. This is the first fall in domestic corn production since 2010.
South Africa: South African yellow corn for December delivery dropped to $164/MT, according to Bloomberg News.
Russia: Russia is in talks with Iran to trade grain valued at $500 million in exchange for oil as a means of getting around Western sanctions, reports Reuters. State-controlled grain trader United Grain Company has stated that it was ready to trade 1-2 MMT of grain per year in return for oil.
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: Generally speaking, the market rally of the past couple of weeks continued to appreciate across vessel segments. Most Baltic Dry-Bulk indices were up week-over-week and owners are feeling better about their Q4 prospects. It does, however, feel like the rally is beginning to lose some momentum and may be topping out for the moment. I do not see the physical markets showing as much strength as the Baltic indices, so it may be a time for adjustment. The markets are of course still in a carry situation with the forward periods bringing higher rates than for nearby shipments.
Based on seller offers to Asia, October-November rates are about $2.00/MT over the spot market. The Feb.-March rates are about an additional $1.00-$2.00/MT premium.
As for the grain freight spreads between the U.S. Gulf and Brazil to China and other Asian destinations, we currently have a spread of about $10.50/MT with Brazil having the advantage. However, as we look forward to March 2015, the deferred market is closer to a $6.50-7.00/MT spread in favor of Brazil. U.S export companies are saying that O-N-D grain elevations in the U.S. Gulf are almost all booked up for the season. We may have to move new additional business to the PNW.
The charts below represent January-December 2013 annual totals versus January-August 2014 container shipments for South Korea.