Market Perspectives - January 23, 2015

1. Chicago Board of Trade Market News

Week in Review

Outlook: Corn contracts have remained rather stable compared to the recent price decline in soybeans. This has caused the price ratio between November 2015 soybeans and December 2015 corn to narrow back to levels not seen since March 2014. In other words, market forces seem to be buying back some U.S. corn acreage for this spring.

It is still too soon in the year for acreage discussion to be a dominant price influencing variable, but that will change going into the month of February. Some degree of weather premium will presumably start to return to corn futures contracts by about the middle of February. The size of that premium and the length of time it endures are entirely dependent upon future conditions that are presently unknown. Currently, the one confident prediction is that market volatility will increase for a time.

The present strong cash basis in corn markets may not encourage additional buying of corn futures by large speculators, but it could give them some reassurance that there is little reason to reduce the long positions that they are holding. Rather, those speculators will bide their time and wait for more definitive information about the success and size of Brazil’s second corn harvest, potential U.S. corn acreage and developing weather conditions. The reluctance of U.S. farmers to sell indicates that many of them feel that probabilities are favorable for speculators eventually creating a better selling opportunity later this spring. 

3. U.S. Weather/Crop Progress

U.S. Drought Monitor Weather Forecast: At least one storm system will track from the southern Plains eastward across the Gulf Coast states and northward along the Eastern Seaboard during January 23-26, 2015. As a result, a large swath along that path and the adjacent Appalachians should get at least an inch of precipitation, and totals may reach 3 inches in eastern Texas and along the central Gulf Coast. Farther north and west, including non-coastal New England and the northern Appalachians, only a few tenths of an inch are expected at best. Above-normal temperatures will settle across a large area from the middle Ohio Valley and central Great Lakes region westward through central and northern sections of the Plains and Rockies, plus the entire Intermountain West and West Coast. Daily high temperatures could average 15F to 24F above normal in the northern Plains and adjacent Rockies. In the Great Basin and most of California, 9F to 12F is expected. Only the southern sections of the Rockies and High Plains will average significantly colder than normal, with anomalies of -3F to -9F.

Conditions should be drier-than-normal for the ensuing period of January 27-31 across the northern halves of the West Coast and Intermoutain West. The odds also favor drier than normal conditions in a broad area from the Plains eastward to the Piedmont and from the northern Mississippi Valley and central Great Lakes region southward to the central Gulf Coast. Meanwhile, enhanced chances for unusually heavy precipitation extend from the North Carolina Coastal Plains northward along the coast and through New England. In addition, the southern Great Plains, all of the High Plains, the southern Rockies, and the Southwest also have enhanced chances for surplus precipitation. Odds favor subnormal temperatures from the Mississippi Valley eastward, and warmer than normal conditions from the Plains westward to the Pacific. 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
US Export inspections
USDA Inspections

Corn: Net sales of 2,185,400 MT for 2014/15--a marketing-year high--were up noticeably from the previous week and from the prior four-week average. Increases were reported for unknown destinations (483,700 MT), Japan (426,300 MT, including 9,000 MT switched from unknown destinations and decreases of 1,000 MT), South Korea (369,800 MT, including 60,000 MT switched from unknown destinations), Taiwan (256,500 MT), Mexico (173,600 MT), Colombia (137,300 MT, including 37,900 MT switched from unknown destinations and decreases of 7,300 MT) and Iran (66,000 MT). Exports of 762,400 MT were up 91 percent from the previous week and 31 percent from the prior four-week average. The primary destinations were Colombia (261,300 MT), Mexico (216,700 MT), Peru (90,400 MT), Japan (78,900 MT) and Guatemala (45,700 MT). Optional Origin Sales: For 2014/15, outstanding optional origin sales total 68,000 MT, all South Korea. 

Barley: Net sales of 2,400 MT for 2014/15 were reported for Japan (1,500 MT) and Taiwan (900 MT). Exports of 16,600 MT were up noticeably from the previous week and from the prior four-week average. The primary destinations were Japan (16,500 MT) and Taiwan (100 MT). 

Sorghum: Net sales of 307,700 MT for 2014/15 were up 12 percent from the previous week and 1 percent from the prior four-week average. Increases were for China (209,500 MT), unknown destinations (86,100 MT) and Japan (12,000 MT). Exports of 108,400 MT were up 25 percent from the previous week, but down 34 percent from the prior four-week average. The destination was China. 

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: Bulk prices for DDGS improved this past week as the barge rate for CIF New Orleans declined by about $15 and the FOB vessel rate at the Gulf was down about $9/MT. It was reported that at least one Panamax vessel of DDGS was sold for $264/MT for June shipment (loaded at NOLA). Presently, the bulk/river bids are more attractive than most container rates, but this past week there was a sizable decline in the rate for containerized DDGS to the Philippines (Manila). Consequently, it seems reasonable to assume that container rates to other Asian destinations may weaken modestly in the next week or two, as long as corn futures contracts remain near present levels.

Different DDGS merchandisers are consistently reporting that bids for containerized DDGS are below their offers. Merchandisers do not seem anxious, especially those who already have their business covered through March. Those merchandisers may be more focused on executing their contracts rather than making new sales, particularly in the front month of January. However, the price of soymeal has gotten cheaper in the Midwest region of the United States and by the end of this week that development seems to have put some pressure on domestic DDGS prices (FOB the ethanol plant).

There was a lot of back and forth pricing discussion this past week with limited activity. The slight easing of domestic values at the end of this week may be a catalyst that facilitates increased trading next week.

Ethanol Comments: Returns for ethanol producers during 2015 will be primarily dependent upon the price of corn and the price of gasoline. The previous Outlook section of this report discusses reasons why the price of corn seems to have a limited downside during the first half of 2015. As a result, the outlook for the price of gasoline during that time period will be of particular importance to U.S. ethanol producers.

The recent sharp decrease in U.S. gasoline prices has resulted in a substantial rebound in the average number of miles driven. Seasonally, the number of miles increases going into the summer and that increase is likely to be larger-than-normal in the first half of 2015. The prospects for growing demand should stabilize gasoline prices, and such an occurrence appears to already be in development. The price of gasoline could plateau for a limited time before starting to rebound somewhat, but resumption of the recent downtrend seems unlikely.

Ethanol stocks of 20.4 million barrels for the week ending January 16 were only slightly larger than the prior week’s level of 20.2 million barrels. Adding further comfort was the fact that the percentage of total ethanol stocks in relation to year ago fell from 25.8 percent the prior week back to 19.8 percent. This occurred as average daily production of 979,000 barrels per day (bpd) remained basically the same as the prior week’s production level of 978,000 bpd. Also reassuring is the fact that the differential between the cost of corn and the return for the co-products of ethanol and DDGS improved on average across the Corn Belt for the week ending Friday, January 23, 2015:

  • Illinois differential is $1.63 per bushel, in comparison to $1.57 the prior week and $3.61 a year ago.
  • Iowa differential is $1.32 per bushel, in comparison to $1.29 the prior week and $2.64 a year ago.
  • Nebraska differential is $1.26 per bushel, in comparison to $1.22 the prior week and $2.73 a year ago.
  • South Dakota differential is $1.60 per bushel, in comparison to $1.60 the prior week and $2.95 a year ago.

7. Country News

Iraq: Barley plantings are down by more than half this season due to continued instability caused by the Islamic State, reports Reuters. The agriculture ministry has indicated that government-controlled Gwer district (bordering Islamic State territory) has left around 50,000 hectares of land unsown.

South Africa: South African farmers may plant 3.3 percent less corn in 2014/15 due to a drop in global prices, according to Bloomberg News. The targeted area this year is 2.6 million hectares compared to the 2.69 million hectares planted last year. 

Russia: Deputy Prime Minister Arkady Dvorkovich stated that Russia could potentially implement a full grain export ban if the current slate of informal trade restrictions don’t have the desired impact of stabilizing domestic prices, according to Reuters.

Ukraine: Ukrainian corn exports rose by 785 percent to total 1 MMT in 2014 compared to the amount exported in 2013, reports Reuters. This uptick in grain shipments has made Ukraine the world’s second largest corn exporter after the U.S. 

8. Ocean Freight Markets and Spread

Bulk Freight

9. Ocean Freight Comments

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting:Global ocean freight markets are showing no mercy towards vessel owners. Every time it seems the market cannot go any lower, it does. The Baltic indices and physical markets continued their downward slide.I fully expect to see more vessel layups. Owners are obviously not willing to sell at these price levels for three-to-six months out, but continue to take what they can get to keep vessels employed month-by-month.Capesize iron ore rates from western Australia to China do seem to have bottomed out and bounced slightly this week. The Lunar New Year celebrations are fast approaching.

Container markets for grain shipments are also weak, but seem a little more stable. Rates from Chicago area to China or Taiwan are running $1,300-$1,400 per container for a 40ft. box. The biggest concern in containerized grain markets are the 45-70 day delays in getting loaded containers put on a ship at West Coast ports. Empty containers for loading in the interior do not seem to be a particular problem. But the West Coast port loading delays are making it very problematic for sellers trying to comply with contract shipment dates. 

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

The charts below represent January-December 2014 annual totals versus year-to-date 2015 container shipments to Hong Kong.

Hong kong 2015
Hong kong 2014
International Freight Rates

10. Interest Rates

Interest Rates