Market Perspectives - September 19, 2014

1. Chicago Board of Trade Market News

Outlook: Current price action in the corn contracts is likely to be something that people look back on in seven months and wonder, “Why didn’t I buy more?” Corn contracts are currently trading below $4.00 per bushel all the way out through December 2016. The probability that corn contracts will coast through 2015 and 2016 below the price of $4.00 per bushel is remote.

The statement that yields are better than expected has turned into a repeated cliché among grain market analysts. USDA is presently projecting a U.S. national corn yield of 171.7 bushels per acre. Price action seems to indicate that many traders believe that the average U.S. corn yield may be larger than this latest estimate. Currently, the average of corn contracts for the remainder of the 2014/15 season can be purchased for less than $3.50 per bushel. The average price of corn contracts for the entire 2015/16 season can be purchased for less than $3.90 per bushel. It is hard to conceive of any corn end-user that cannot lock in a favorable margin when such prices are being offered.

3. U.S. Weather/Crop Progress

U.S. Drought Monitor Weather Forecast: During the September 19-22, 2014 time period, the remnants of Tropical Storm Odile are expected to bring heavy precipitation and flooding to the Southwest, particularly in southern Arizona and New Mexico. Beyond that event, precipitation is expected from the Southwest, through the Plains, and into the Ohio River Valley. At the same time, above normal temperatures are expected along the northern tier of the nation with warmer than average minimum temperatures across the nation with the exception of the East Coast.

For the ensuing 5 days (September 23-27, 2014), the odds favor normal to above-normal temperatures across the western U.S. and along the Gulf of Mexico Coast. Below-normal temperatures are favored around the Great Lakes and into New England. Above-normal precipitation is likely along the Gulf of Mexico Coast and in the Four Corners area of the Southwest. Below-normal precipitation is expected in the Plains and throughout much of the West. 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 659,700 MT for 2014/2015 were reported primarily for Peru (142,500 MT, including 60,000 MT switched from unknown destinations), Japan (126,000 MT, including 4,500 MT switched from unknown destinations), Mexico (104,500 MT), Guatemala (84,200 MT, including 35,800 MT switched from Costa Rica and 21,400 MT switched from unknown destinations), and South Korea (68,300 MT, including 65,000 MT switched from unknown destinations). Decreases were reported for Costa Rica (32,300 MT), Canada (8,300 MT), and Egypt (3,200 MT). Exports of 722,400 MT were primarily to Mexico (175,200 MT), Japan (91,400 MT), South Korea (87,000 MT), Colombia (69,000 MT), Egypt (64,800 MT), Peru (61,400 MT), Guatemala (40,100 MT), and Venezuela (37,000 MT).

 Barley: Net sales of 42,600 MT for 2014/2015--marketing-year high--were reported for unknown destinations (25,000 MT), Japan (17,000 MT), and Taiwan (600 MT). Net sales reductions of 25,000 MT for 2015/2016 were reported for unknown destinations. Exports of 900 MT were reported to Taiwan (800 MT) and South Korea (100 MT).

Sorghum: Net sales of 332,400 MT for 2014/2015 were reported for China. Exports of 111,500 MT were reported to China. 

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: Domestic DDGS prices declined on average another $5.00/MT on offers for the October-December time period. The only positive domestic price was for deliveries to Mid-Bridge Laredo, TX. Offers on containerized DDGS averaged down an additional $9.00/MT for that same time period. The desire by merchandisers to move product is evidenced by the fact that the spot prices for both domestic and containerized exports are on average $3.00/MT lower for December.

Market reports vary from merchandisers and seem to indicate that sales activity is presently inconsistent but picking up. An example of the different ends of the spectrum is presented by a merchandiser in one region reporting that prices increased $5 to $10 /MT, while a merchandiser in a different region indicated that demand was still soft. Further investigation leads to the conclusion that the difference between these regions has a lot to do with their mix of clientele. Domestic buyers are becoming more aggressive than are their foreign counterparts. Many of the domestic buyers have facilities located in the Corn Belt, and their increased buying activity seems to indicate that they perceive a bottom is presently taking shape in the corn market.

Ethanol Comments: Data indicates that ethanol producer margins were impacted hard this past week as the delivered ethanol prices declined by up to 27 cents per gallon. Such a substantial one-week decline caused the differentials between ethanol and the co-products to fall well below last week and year-ago levels. Difficulties are compounded by the fact that ethanol stocks increased in one week by 4.4 percent to 18.8 million barrels. This stock level is 16.2 percent above the year ago. It would be preferable for weekly production to decline under conditions of building stocks, but that is not the case. Weekly production increased from a prior weekly average of 927,000 barrels per day (bpd) to 931,000 bpd for the week ending 12 September. 

There was a large decline in the differential between the price of corn and prices for ethanol co-products in all four of the reporting regions for the week ending 19 September 2014:

  • Illinois differential is $2.40 per bushel, in comparison to $2.94 the prior week and $3.57 a year ago.
  • Iowa differential is $2.19 per bushel, in comparison to $2.78 the prior week and $3.28 a year ago.
  • Nebraska differential is $2.09 per bushel, in comparison to $2.71 the prior week and $2.71 a year ago.
  • South Dakota differential is $2.48 per bushel, in comparison to $3.24 the prior week and $3.27 a year ago.

7. Country News

EU: All indications are that a record corn crop is being produced in the European Union. Some forecasters are predicting that total EU corn production could top 70 MMT, reports Reuters. France is the largest corn producer in the EU and is expected to produce more than 17 MMT.

Israel: Israel imports almost all of its feed grain for the country’s domestic poultry and dairy operations. Current price levels within the global market have encouraged private Israel buyers to enter the market. The following purchases were recently completed: 80,000 MT of corn and another 50,000 MT of feed wheat from Ukraine for shipment in November 2014 through January 2015 (per a WPI report)..

South Korea: South Korea is also shopping around in global corn markets, with a purchase order of more than 200,000 MT by Nonghyup Feed Inc. (NOFI). This company is South Korea’s largest feed maker. The South Korean Corn Processing Industry Association (KOCOPIA) is also in the market for corn, reports Reuters.

8. Ocean Freight Markets and Spread

9. Ocean Freight Comments

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: You can call this a down week or maybe an adjustment week, but any way you look at it world Dry-Bulk ocean freight indices and physical rates were lower. In fact, rates declined each day of this week and took back most of the market gains of the last two weeks.

The North American fall harvest has not yet gained enough momentum to create a big enough demand to help hold the market up. We have seen Chinese vessels showing up for new crop U.S. soybeans in the Gulf, but there isn’t much to put in them yet. Only a few such cargoes have been loaded and so the market anxiously awaits what it hopes will be better farmer selling and more cargo demand in the coming weeks.

Below is a recent history of freight values for Capesize vessels of iron ore from Western Australia to China:

The charts below represent January-December 2013 annual totals versus year-to-date 2014 container shipments to Malaysia.

10. Interest Rates