Market Perspectives - March 20, 2015

1. Chicago Board of Trade Market News

Week in Review

Outlook: Back on February 27 this Outlook section discussed the prospects of the soy complex leading corn contracts into a short-term sell-off and that such an event could be a favorable buying opportunity for end-users of corn. Such an event has happened and the highest probability now seems to be that corn futures will strengthen back-up prior to USDA publishing the Prospective Plantings and Grain Stocks reports on March 31.

The Grain Stocks report will be important because it gives an update about the amount of grain on hand at the start of March, both on-farm and off-farm. U.S. farmers have been patient sellers of corn and that has given some support to basis throughout the Corn Belt. That measured selling could result in Grain Stocks data showing that there is abundant product that needs to be moved before the next harvest. However, the potential production of the next harvest will be the more weighty matter in the minds of market participants.

The Prospective Plantings report will be the first surveyed indicator of what U.S. feed grain acreage is likely to be. Futures contracts can react aggressively in accordance with the contents of this report. The smaller the potential acreage, the greater the anxiousness about weather’s influence in future yields. U.S. weather will be heavily monitored, but so will planting conditions in the Black Sea region and China. Unfavorable weather in any of these locations could result in excited price action. Corn producers generally seem to be waiting in anticipation for such a chain of events to develop and create a better marketing opportunity for much of the current stocks that are being held. 

3. U.S. Weather/Crop Progress

U.S. Drought Monitor Weather Forecast: Through March 24, two low-pressure systems will track their way across the Deep South. The first system may bring upwards of 2 inches in the Southeast. The second system may bring 2 or more inches to eastern Texas, an, depending on the track, the Carolina Coast. To the north, more snow is expected in the Northeast as a clipper system interacts with a costal low. The heaviest snows may fall in Upstate New York and along the New England coastline. Elsewhere, two small Pacific storms will affect the Northwest during this period. For temperatures, the highest probabilities of below and above-normal values are in the Northeast and Southwest, respectively.

Looking further out through the end of the month, warmer-than-normal temperatures continue their dominance in the West, while a series of short-wave impulses support cooler-than-normal temperatures in the Northeast. The Climate Prediction Center precipitation probabilities are below average for the West, Southwest and Deep South. Above average probabilities are forecasted for the Northwest, Upper Plains and East Coast. 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

US Export Inspections
USDA Insections

Corn: Net sales of 502,300 MT for 2014/15 were up 20 percent from the previous week, but down 31 percent from the prior four-week average. Increases were reported for Japan (243,100 MT, including 90,200 MT switched from unknown destinations and decreases of 27,500 MT), Colombia (108,300 MT), Mexico (69,100 MT), Taiwan (60,400 MT, including 60,000 MT switched from unknown destinations and decreases of 200 MT), Peru (57,900 MT) and Morocco (44,800 MT, including 45,000 MT switched from unknown destinations and decreases of 200 MT). Decreases were reported for unknown destinations (132,700 MT) and Egypt (4,800 MT). Net sales of 64,800 MT for 2015/16 were reported for unknown destinations (38,200 MT), Mexico (13,500 MT), Colombia (6,000 MT), Guatemala (5,900 MT) and Honduras (1,200 MT). Exports of 692,700 MT were down 41 percent from the previous week and 33 percent from the prior four-week average. The primary destinations were Japan (163,400 MT), South Korea (133,000 MT), Mexico (92,800 MT), Taiwan (72,200 MT), Colombia (61,000 MT), Egypt (55,200 MT) and Morocco (44,800 MT). Optional Origin Sales: For 2014/15, outstanding optional origin sales total 68,000 MT, all South Korea. 

Barley: Net sales reductions of 3,100 MT for 2014/15 were reported for Japan. Net sales of 3,100 MT for 2015/16 were reported for Japan. Exports of 300 MT were reported to Taiwan (200 MT) and Canada (100 MT).

Sorghum: Net sales of 181,800 MT resulted as increases for China (297,700 MT, including 116,000 MT switched from unknown destinations) and Japan (8,200 MT, including 8,100 MT switched from unknown destinations), were partially offset by decreases for unknown destinations (124,100 MT). Net sales of 166,300 MT for 2015/16 were reported for China (107,300 MT) and unknown destinations (59,000 MT). Exports of 289,200 MT were up noticeably from the previous week and 34 percent from the prior four-week average. The destinations were China (281,000 MT) and Japan (8,200 MT). 

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: The different perspectives of participants within the global DDGS market became readily apparent this past week. Consider the following interesting conditions: This week, the most active pricing inquiries from foreign buyers were being made by Chinese clients, while other Asian DDGS buyers were more detached from the market. That pattern of price inquiries was the opposite last week.

Curiously, it was U.S. exporters who were most active in making actual purchases. These domestic buyers were willing to pay $15-20/MT more than the bids coming out of Asia. This differing willingness to purchase implies that local market conditions can have a substantial influence on perspectives: The domestic DDGS buyers observed the recent sell-off in corn futures contracts and seemed to view that event as a buying opportunity before U.S. feed grain prices become increasingly volatile this spring. (Please see the preceding discussion in the Outlook section.) Alternatively, Chinese buyers are likely being influenced by the more bearish outlook for soymeal prices in their own local market.

The perspective of DDGS merchandisers seems to be that they are comfortable with unchanged price levels, but they are not willing to discount prices further while corn futures contracts rebound in Chicago. The result is that there was a slight decline in the bulk rate of DDGS to the Gulf of Mexico this past week while the average domestic and containerized prices were virtually unchanged. The modest increases in the rates for containerized DDGS to Vietnam and Thailand may have had more to do with logistics than any other factor; this factor is expected to become increasingly important after the first of April due to the prospect of a general rate increase (GRI). 

Ethanol Comments: Ethanol prices have basically remained within a horizontal trading range during the past three months. Last year, there was a rebound in prices during that same time period. In comparative terms, this season’s price action is already weaker and an additional sharp setback in price seems unwarranted under present conditions.

The fact that crude oil stocks are well above a year ago is touted as a bearish condition by some ethanol market observers, but the stocks of petroleum products are not nearly so ominous. Crude oil stocks are large because refiners have made acquisitions of product at price levels that are perceived to be very favorable. Refiners will soon begin to increase production from those enlarged stocks in order meet the anticipated growth of summer driving demand.

It is also possible that market perceptions could become more bearish if rumors of imports of Brazilian ethanol do evolve into something of significance. So far, no ethanol imports at all are confirmed by EIA data. Rather, the data shows that total U.S. ethanol stocks declined by 1.7 percent, from 21.2 million barrels the prior week down to 20.8 million barrels for the week ending March 13. The average daily production rate for this same week of 947,000 barrels per day (bpd) is basically equivalent to the prior-week’s rate of 944,000 bpd. Therefore, the present stability in average ethanol producer margins does make sense. The differential between the spot price of corn and the co-products of ethanol is not a producer margin but it is a useful indicator that implies continued stability through the week ending Friday, March 20:

  • Illinois differential is $2.05 per bushel in comparison to $2.04 the prior week and $7.89 a year ago.
  • Iowa differential is $1.83 per bushel in comparison to $1.67 the prior week and $5.48 a year ago.
  • Nebraska differential is $1.68 per bushel in comparison to $1.57 the prior week and $5.11 a year ago.
  • South Dakota differential is $1.79 per bushel in comparison to $1.88 the prior week and $6.26 a year ago.

7. Country News

China: China has ordered 600,000 MT of Ukrainian corn with the expectation for further bookings throughout the year, reports Reuters. The shipments come under the auspices of a loan-for-grain deal that China had previously signed with Ukraine. Some of the Ukrainian shipments for April/May were quoted at $240/MT including cost and freight. China received 1 MMT of Ukrainian corn last year through the loan-for-grain deal.

Japan: Japan is reducing its purchases of feed wheat in favor of cheaper corn, according to Bloomberg. The government anticipates purchasing 680,000 MT of wheat this year, a reduction of 24 percent from last year. Purchases of feed barley have also been cut by 47 percent to total some 690,000 MT.

South Africa: Africa’s largest corn producer is experiencing its worst drought since 1992, which has caused the country to import corn for the first time in 11 months, according to Bloomberg News. South Africa will need to import 934,000 MT of yellow corn through March 2016. Three shipments of 30,000 MT each are already en route from Argentina. This drought comes on the heels of one of the largest crops in recent memory. 

8. Ocean Freight Markets and Spread

Bulk Freight

9. Ocean Freight Comments

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: It was another relatively quiet week in global ocean freight markets. Chartering activity was rather thin with most of the interest focused on the East Coast South America (ECSA) to Asia trade. With the exception of the Capesize market, rates are unchanged to up slightly due to vessel owner/operator resistance to book at lower levels. I don’t foresee any dramatic price moves in the coming weeks.

As the owners bear less stress for ballast cost, it makes the decision to ballast to ECSA easier with the hope of getting a better market when they arrive. That is where all roads seem to lead today.

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

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

Taiwan 2015
Taiwan 2014
International Freight Rates

10. Interest Rates

Interest Rates