Market Perspectives - April 17, 2015

1. Chicago Board of Trade Market News

Outlook: USDA published the planting pace for U.S. corn on Monday and data showed that 2 percent was planted as of April 12. That is behind the average rate of 5 percent, but being behind or ahead of the average is not extremely important this early in the season. Corn planting was 3 percent accomplished for the same week last year and progressed to surpass the average before the planting period was complete. However, the progression of planting within the primary states does need to be monitored. For example, the five-year average rate of corn planting in Illinois is 9 percent complete by April 12, while this season it is nothing.

The planting pace for U.S. sorghum was 16 percent complete as of April 12. Last year it was 19 percent complete and the five-year average is 20 percent complete. Oklahoma is the only state where sorghum planting is running ahead of the five-year average. In contrast, the planting place of U.S. barley at 27 percent complete is ahead of the average and last season’s rate, both of which are 15 percent. The majority of U.S. barley is produced in the northwest portion of the United States and not in the Corn Belt.

The short term outlook is that price action for feed grains will become increasingly volatile and choppy as updated global weather forecasts and additional demand news supersedes the importance of technical chart patterns for a time.   

3. U.S. Weather/Crop Progress

U.S. Drought Monitor Weather Forecast: Normal to below-normal temperatures are expected in the central and eastern parts of the country in the coming days. Warmer-than-average temperatures should cover the West Coast. Above-normal precipitation is expected from the Southern Plains across the South and Southeast. Drier conditions are expected across much of the West.

The NWS 10-day outlook calls for normal to above-normal temperatures over the U.S. west of the Rocky Mountains and in the extreme Southeast. Precipitation is expected to be above-normal through the eastern third of the country and into the Southern Plains. Below-normal precipitation can be expected from the Pacific Northwest through the Northern and Central Plains. 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 588,200 MT for delivery in 2014/15 were down 8 percent from the previous week, but up 19 percent from the prior four-week average. Increases were reported for Japan (194,300 MT, including 43,000 MT switched from unknown destinations and decreases of 66,600 MT), South Korea (166,000 MT, including 88,000 MT switched from unknown destinations and decreases of 2,300 MT), China (65,200 MT), Mexico (51,500 MT) and Guatemala (36,700 MT, including 42,900 MT switched from unknown destinations and decreases of 5,000 MT). Decreases were reported for unknown destinations (60,400 MT) and the Dominican Republic (3,300 MT). Net sales of 28,500 MT for 2015/16 were reported for unknown destinations (21,000 MT), Guatemala (4,600 MT) and El Salvador (3,000 MT). Exports of 870,900 MT were down 26 percent from the previous week and 4 percent from the prior four-week average. The primary destinations were Japan (276,100 MT), South Korea (255,900 MT), Mexico (178,900 MT), Colombia (63,300 MT), Guatemala (46,800 MT), El Salvador (20,800 MT) and Morocco (17,500 MT). Optional Origin Sales: For 2014/15, options were exercised to export 68,000 MT to South Korea from the United States. 

Barley: There were no sales or exports reported during the week.

Sorghum: Net sales of 66,300 MT for 2014/15 resulted as increases for China (124,800 MT, including 58,000 MT switched from unknown destinations and decreases of 7,000 MT) and Japan (9,500 MT, including 10,000 MT switched from unknown destinations and decreases of 500 MT), were partially offset by decreases for unknown destinations (68,000 MT). Net sales of 58,000 MT for 2015/16 were reported for unknown destinations. Exports of 350,800 MT--a marketing-year high--were up 92 percent from the previous week and 51 percent from the prior four-week average. The destinations were primarily for China (341,200 MT) and Japan (9,500 MT). 

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: This past week began with corn futures contracts breaking lower and a number of domestic buyers of DDGS taking the opportunity to purchase when the reduces prices were presented. The initial drop in the price was more than $10/MT to the West Coast of the United States and by about $5/MT to the Gulf of Mexico. That opportunity was rather short lived as corn contracts worked steadily higher throughout the remainder of the week. 

The prices of corn futures contracts are presently structured to reflect the cost of storage. For example, the cost of the July corn contract is higher than the price of the May contract because of the cost of storage over several months. However, DDGS merchandisers are currently offering prices in the June and July time period that are below the price of DDGS in May. In other words, the DDGS merchandisers are absorbing the additional storage costs themselves and offering better prices to their customers. As a result, most Asian buyers are presently able to purchase containerized DDGS for June and July that are from $3-5/MT below the cost of May. 

If a weather concern develops within global grain markets, then the nearby corn futures contract commonly increases above the more distant contracts. If such an event happened, it would then become difficult for merchandisers to continue offering the same favorable terms to customers. Domestic buyers could be particularly hurt in such a situation because they prefer to purchase in the spot market, and DDGS merchandisers could not help them when the nearby corn contract is priced above the more distant contracts. As well, the creation of a longer-term pricing agreement is normally also less favorable when the nearby corn futures contract is priced higher than the distant months. 

Ethanol Comments: The year-ago ethanol production level of 939,000 barrels per day (bpd) exceeded the current production rate of 924,000 bpd this week. The weekly ethanol production rate may continue to decline as tighter margins are encouraging a number of plants to shut down for spring maintenance earlier this season than last season. There simply is no incentive to limit downtime when returns are breakeven and ethanol stocks are not yet decreasing. This season, the opportunity seems to exist for more extensive maintenance.

The present U.S. ethanol stocks level of 20.6 million barrels is basically unchanged from the prior week’s level of 20.5 million barrels and the differential between the spot price of corn and co-products is also unchanged, despite the lower corn prices this past week. The differential between the spot price of corn and the co-products is the following for key quadrants of the Corn Belt from the week ending April 17, 2015:

  • Illinois differential is $2.38 per bushel, in comparison to $2.32 the prior week and $4.89 a year ago.
  • Iowa differential is $2.00 per bushel, in comparison to $1.99 the prior week and $4.17 a year ago.
  • Nebraska differential is $1.89 per bushel, in comparison to $1.89 the prior week and $3.89 a year ago.
  • South Dakota differential is $2.19 per bushel, in comparison to $2.19 the prior week and $4.72 a year ago.

7. Country News

China: The government is considering a plan to double subsidies paid out to corn processors in China’s main northeastern corn-producing region in an effort to prop up the industry and increase consumption, according to Reuters. This $32/MT incentive would apply to processors that have an annual capacity of more than 100,000 MT. Industrial corn consumption fell by 5.2 percent in 2013/14 to 47.6 MMT, which is the largest drop in five years. Due to large stockpiles the government has begun selling corn a month earlier than it did last year. However, corn sales have been low so far with the government reporting that it only sold 2,808 MT of the 295,481 MT it had offered this week. The average price was $395.17/MT, while imported U.S. corn is being offered at $372.75-$382.43/MT.

South Africa: Africa’s largest corn producer is looking for new markets despite being forced by severe drought to begin importing corn, reports Bloomberg News. Farmers are looking to increase sales in the Middle East and Asia, with Saudi Arabia and Vietnam being identified as particularly good prospects. For the last seven years, South Africa has exported an average of 1.9 MMT of corn annually, and while this crop may be reduced by as much as 32 percent, the prior-year’s was the largest in over three decades.

Ukraine: Ukraine intends to ship 3.5 MMT of grain to China this year as part of the 2012 loan-for-grain agreement between the two countries, according to Reuters.

Further on Ukraine: Reuters reports that UkrAgroConsult may downgrade its estimate of the country’s barley harvest due to the possibility of a reduced planting area. For now, the forecast remains unchanged at 7 MMT.

Yemen: The outbreak of violence in Yemen has caused the country’s food security to rapidly worsen and prices to double as both the corn and sorghum planting season and food markets have been disrupted, reports Reuters. The FAO estimates that 11 million of the 26 million people in Yemen are severely food insecure, while 16 million people are classified as needing at least some form of humanitarian aid and lacking access to safe drinking water

8. Ocean Freight Markets and Spread

9. Ocean Freight Comments

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: I fear this is getting to be a bit like watching paint dry. World freight markets have not moved much at all in value in the last three-to-four weeks. As far as the market goes we are simply sailing around in circles.

I will have to find something creative to write about if nothing changes next week. But, for now, the market is steady and remains at low rates that should be attractive to grain buyers around the globe. The market badly needs more cargo demand.

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

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

10. Interest Rates