1. Chicago Board of Trade Market News
Outlook: This section has previously highlighted the possibility of a setback in soy complex prices that could allow for limited downward pressure on corn contracts; which event could create a buying opportunity for end-users of corn. That anticipated price action seems to presently be in development.
Corn contracts have been carving out a narrow trading range for more than a month. The development of a horizontal trading range has occurred because many market participants share an opinion that the weight of potentially bullish scenarios in the global corn market is larger than the composite of potentially bearish developments. However, circumstance offered buyers no opportunity to purchase lower and it was too early in the season to give potentially bullish developments enough credence to drive prices higher. But now, the progression of time into March and a limited sell-off in corn contracts is a composite that could attract more attention.
The interest in buying corn contracts at lower price levels is unlikely to dissipate until after the planting intentions and progress are better defined; which conditions will become more certain around the first part of May. Until then, the outlook is that the probability for significant price movement in corn contracts is greater to the upside.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: The NWS WPC5-Day Quantitative Precipitation Forecast calls for light- to-moderate liquid precipitation accumulations (generally less than two inches) in the southeastern quarter of the U.S. with the greatest accumulations (one-to-two inches) centered over Arkansas, Tennessee and West Virginia. The West, Northern Plains and Upper Midwest are forecasted to be generally dry. The 10-day outlooks call for a high probability of above-normal temperatures across the West, High Plains, Upper Midwest and the Southeast while below-normal temperatures are forecasted for eastern New Mexico, Texas and the Northeast. A high probability of above-normal precipitation is forecasted across the Pacific Northwest, northern California and along the southern tier from New Mexico to the Southeast. 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 828,100 MT for 2014/15 were up 16 percent from the previous week, but down 5 percent from the prior four-week average. Increases were reported for Saudi Arabia (285,300 MT, including 135,000 MT switched from unknown destinations), Japan (262,000 MT, including 210,600 MT switched from unknown destinations and decreases of 64,600 MT), Mexico (218,000 MT), Colombia (113,900 MT, including 65,000 MT switched from Peru, 30,000 MT switched from unknown destinations and decreases of 8,700 MT), Taiwan (66,100 MT) and South Korea (64,900 MT). Decreases were reported for unknown destinations (301,900 MT). Net sales of 158,700 MT for 2015/2016 were reported for Japan (157,400 MT) and unknown destinations (1,300 MT). Exports of 1,378,800 MT--a marketing-year high--were up 59 percent from the previous week and 91 percent from the prior four-week average. The primary destinations were Japan (402,500 MT), Mexico (231,200 MT), Colombia (162,200 MT), Saudi Arabia (145,300 MT), Egypt (131,000 MT), South Korea (67,000 MT), the Dominican Republic (42,900 MT) and Peru (33,000 MT, late reporting). Optional Origin Sales: For 2014/15, outstanding optional origin sales total 68,000 MT, all South Korea.
Barley: Net sales of 1,300 MT for 2014/15 were reported for Canada (1,200 MT) and Japan (100 MT). There were no exports reported during the week.
Sorghum: Net sales of 182,400 MT for 2014/15 resulted as increases for China (380,400 MT, including 253,000 MT switched from unknown destinations and decreases of 1,600 MT), were partially offset by decreases for unknown destinations (198,000 MT). Net sales of 57,000 MT for 2015/2016 were reported for China (60,000 MT). Decreases were reported for unknown destinations (3,000 MT). Exports of 319,400 MT were up 51 percent from the previous week and 75 percent from the prior four-week average. The destination was China.
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Domestic DDGS buyers experienced rate increases of $7-10/MT for the April to June time period. As well, there were sizable rate increases for barges and bulk rail rates to the Gulf of Mexico. Such increases are in part due to higher logistical costs. Containerized DDGS are anticipated to soon see similar cost increases because shipping lines have apparently given notice to clients of their intention to implement a general rate increase (GRI) after the first of April. That GRI is expected to increase costs for a 40-foot container of DDGS to Asia by at least $6/MT.
Knowledge of this impending GRI seems to be one reason for increased buyer interest. At the moment, business activity remains limited because the spread between offers and bids is commonly more than $10/MT. Vietnamese buyers were actively making price inquiries, but no trades were reported. Chinese buyers were also making a lot of inquiries, and 20,000 MT of DDGS were sold for Shanghai and Qingdao at around $295-297/MT.
DDGS merchandisers seem anxious and ready to work with buyers in seeking pricing opportunities for this spring because they recognize that volatility in corn futures contracts has a tendency to increase after the first of March. This increase is due to uncertainties about acreage and planting conditions; merchandisers also recognize that ethanol plants will be slowing down production for spring maintenance. Under such conditions, it is much easier for both the merchandisers and the established clientele if production obligations are known beforehand.
Ethanol Comments: Ethanol stocks are slowly in decline: Total stocks were 21.5 million barrels for the week ending February 27. That is slightly lower than the prior week’s level of 21.6 million barrels, but admittedly a concerning 29.6 percent larger than the prior year’s level of 16.6 million barrels.
Total ethanol stocks are not anticipated to increase significantly more this spring if weekly production stays on course with its present decline from 947,000 barrels per day (bpd) down to 931,000 bpd for the most current week. That is still more than 4.1 percent above the year-ago production rate of 894,000 bpd, but lower gasoline prices should stimulate greater gasoline consumption this spring and into the summer driving season.
The differential between the cost of corn and the return for the co-products of ethanol and DDGS improved across the Corn Belt for week ending Friday, March 6, 2015:
Illinois differential is $1.97 per bushel, in comparison to $1.78 the prior week and $6.08 a year ago.
Iowa differential is $1.55 per bushel, in comparison to $1.41 the prior week and $3.74 a year ago.
Nebraska differential is $1.41 per bushel, in comparison to $1.28 the prior week and $3.47 a year ago.
South Dakota differential is $1.72 per bushel, in comparison to $1.67 the prior week and $3.93 a year ago.
7. Country News
Argentina: Argentine farmers are suspending grain sales for three days this week in order to protest government policies (including export quotas) that hurt their profits, reports Reuters. The strike will begin on Wednesday, March 11.
Cuba: An important U.S. agricultural delegation began three days of meetings on Monday in an effort to forge business contacts, according to Reuters. The 95-person delegation was composed of two former agriculture secretaries, numerous state agricultural officials and members from state farm bureaus. Cuba imports around $2 billion in agricultural products annually, and this mission is seeking to have U.S. exports make up $1 billion of that total. Exports in 2014 totaled $291 million, which was down from 2008’s high of $710 million.
Ukraine: Food and Agriculture Minister Oleksiy Pavlenko has announced that Ukraine will send a delegation to China next month in an effort to negotiate a new agreement that would double corn exports, reports Reuters. Exports to China in 2014 totaled nearly 1 MMT. Ukraine is expected to be the world’s fourth-largest corn producer in 2014/15, with total exports of 16 MMT (down from 19.9 MMT last year). The minister also indicated that he is seeking to increase trade with the EU to make up for sales traditionally destined for Russia.
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: The Baltic Indices now have a two-week winning streak going. They were up again in a very thin and quiet trade. However, I must once again say that the physical rates have not fully followed this trend. The Capesize market was weak most of the week, and only got a little bump up at week’s end. Most of the value improvement occurred in the smaller-size vessel markets. Keep in mind that spot values are the weakest and can probably be booked at slightly cheaper rates than indicated below.
Although things have bounced upward a bit, I don’t see any meaningful improvement in rates until we get towards the second half of this calendar year. I heard one trade estimate that said all the global freight market needs is 3 billion MT of additional business and it would be profitable again. That, of course, is a big wish that even Santa can’t deliver this year, so vessel owners will continue to struggle in a market that is probably close to 15-20 percent over built.
The average daily earnings for Panamaxes, is $4,699/day, up just $157/day from last week. Supramax average daily earnings are $5,857/day, and Capesize vessels are at average daily earnings of $4762/day, which is slightly lower than last week.
The West Coast PMA-ILWU container port labor negotiations came to a tentative settlement a week ago and are still waiting for ratification by the union general membership. But the ports are back to work at full speed and trying to get through the large backlog.
The charts below represent January-December 2014 annual totals versus year-to-date 2015 container shipments to the Thailand.