1. Chicago Board of Trade Market News
Outlook: Feed grain markets presently seem to have a bearish bias. This stems from negative-looking charts that are encouraging discussion of the potential bird flu while paying less attention to factors such as larger-than-expected U.S. cattle placements on feed and growing export sales purchases at present price-levels.
Temperatures across the U.S. Corn Belt are increasing as we move into May and there is no excess moisture causing sustained delays in planting. However, the planting pace and corn emergence rate continues to lag behind the five-year average. Point being, normalcy is presently being treated as a bearish factor because of predisposed perceptions. This condition is important to note because it can result in rather fickle market action. For example, the recent sell-off in corn caused most technical indicators to turn bearish and suggest selling. However it would not take much of a rebound before the present sell off in corn contracts started to appear as the left side of an inverted head-and-shoulders chart pattern. Market commentaries could then flip and start to search for fundamental reasons why prices could go higher. The outlook is that vacillating and unpredictable price action is likely to be particularly pronounced when fundamental factors are primarily being sought to justify technical charts and the resulting trades.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: For the upcoming period of May1-May 4, much of the contiguous United States is expected to receive little, if any, precipitation. Fairly localized exceptions may include Virginia and West Virginia and parts of the Corn Belt, where 0.5-2.0 inches is predicted.
For the 10-day period, there are elevated odds of above-median precipitation across most areas between the Rockies and Appalachians, as well as for southern Florida. There are elevated odds of below-median precipitation for much of the Pacific Northwest and part of 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 832,500 MT for delivery in 2014/15 were down 4 percent from the previous week, but up 33 percent from the prior four-week average. Increases were reported for Japan (353,500 MT, including 131,700 MT switched from unknown destinations and decreases of 90,100 MT), Saudi Arabia (146,000 MT, including 136,000 MT switched from unknown destinations), Mexico (89,300 MT, including 35,800 MT switched from Colombia and decreases of 48,800 MT), South Korea (66,100 MT), Colombia (27,100 MT, including 45,000 MT switched from unknown destinations and decreases of 7,600 MT) and the Dominican Republic (26,700 MT, including 23,500 MT switched from unknown destinations). Decreases were reported for Nicaragua (400 MT). Net sales of 113,300 MT for 2015/16 were reported for Japan (100,300 MT), unknown destinations (12,400 MT) and Nicaragua (500 MT). Exports of 1,269,300 MT were up 22 percent from the previous week and 35 percent from the prior four-week average. The primary destinations were Mexico (341,000 MT), Japan (179,200 MT), Saudi Arabia (146,000 MT), South Korea (132,300 MT) and Colombia (119,500 MT).
Barley: Net sales of 6,000 MT for 2014/15 were reported for Japan. Exports of 100 MT were reported to South Korea.
Sorghum: Net sales of 6,200 MT for 2014/15 resulted as increases for China (64,200 MT, including 58,000 MT switched from unknown destinations), were partially offset by decreases for unknown destinations (58,000 MT). Net sales of 273,000 MT for 2015/16 were reported for China (218,000 MT) and unknown destinations (55,000 MT). Exports of 160,700 MT were down 26 percent from the previous week and 30 percent from the prior four-week average. The destination was China.
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Many Asian buyers were out of the market this week because of May Day celebrations, though some have noticed that spot bulk rates for DDGS declined by about $17/MT. Near-term bulk rates for domestic buyers in the South declined by more than $13/MT and by about $10/MT for rail-delivered DDGS to the U.S. West Coast. Near-term rates for containerized DDGS declined this week by an additional $5/MT and by about $7-9/MT for June and July. Domestic DDGS rates for June and July are also averaging about $1-3/MT lower.
DDGS merchandisers are being forced to reduce price offers to Asian buyers due to competition from falling soymeal prices from South America and weaker corn prices in the U.S. Corn Belt. DDGS prices are being adjusted lower so as not to be priced out of feeding rations. The majority of DDGS merchandisers seem able and willing to price competitively in order to maintain market share.
Certain end-users of DDGS tend to have a price level in mind that will enable them to lock in a favorable profit margin at their feeding operations. Others seemingly desire to purchase at the absolute lowest price for the season, though successfully accomplishing that feat may be particularly difficult this year because current price weakness is occurring so early and may not last.
Favorable weather for planting encouraged corn futures contracts to decline sharply this past week, but the planting pace is still not yet 50 percent complete and rains are expected to return to the Corn Belt next week. The majority of DDGS merchandisers seem to recognize that corn futures contracts could easily rebound above the lows of this week. That fact makes it difficult for them to offer even lower prices one or two month out unless there is a formal agreement and some sort of down payment. Many buyers seem to understand this fact and may return in greater force next week, particularly if Chicago corn futures contracts firm up.
Ethanol Comments: U.S. ethanol imports fell back to zero for the week-ending March 24, after momentarily bouncing to an average daily rate of 53,000 barrels per day (bpd) the prior week. This is favorable news for U.S. ethanol producers because the United States overtook Brazil in 2014 as the world’s largest ethanol exporter. Six percent of U.S. ethanol was exported in 2014 and it was valued at more than $2 billion dollars.
Total U.S. ethanol stocks declined to 20.8 million barrels from the prior-week’s level of 21.3 million barrels. This decline is partly due to increased usage and a reduced average daily production rate of 921,000 bpd, which is below the prior week’s average daily rate of 930,000 bpd.
Declining stocks and weaker corn prices enabled the differential to improve between the spot market price for corn and the prices for ethanol and DDGS. However, the differential may weaken if DDGS prices continue the sharp declines of the past two weeks (Please see DDGS discussion). The differential between the price of corn and the spot price of corn and co-products improved in the following in primary regions of the Corn Belt for the week ending May 1, 2015:
- Illinois differential is $2.52 per bushel in comparison to $2.40 the prior week and $3.67 a year ago.
- Iowa differential is $2.23 per bushel in comparison to $2.11 the prior week and $3.28 a year ago.
- Nebraska differential is $2.11 per bushel in comparison to $1.95 the prior week and $3.07 a year ago.
- South Dakota differential is $2.49 per bushel in comparison to $2.31 the prior week and $3.69 a year ago.
7. Country News
Africa: The FAO is predicting that the corn harvest for southern Africa is likely to fall by 26 percent from 2014 totals due to erratic precipitation, according to Bloomberg News. Corn production for the region is forecast at 21.1 MMT, which is 15 percent below the five-year average. South Africa, the continent’s largest corn producer, has been particularly hard hit by drought this year and is expecting a 32 percent reduction in its 2015 harvest. South African corn imports for this year through April 30 are expected to increase to 1.8 MMT, which is twice the amount imported last year and a third higher than average.
Argentina: The grain hub of Rosario was shut down this week as port-worker unions are striking to receive higher wages, according to Reuters. These strikes have threatened to slow Argentine grain exports should they persist without resolution. This action has caused all 25 ports that make up the Gran Rosario hub to shut down. Workers have threatened to strike indefinitely if a deal is not reached by Monday night.
Indonesia: Indonesia is set to reduce its corn imports to 3 MMT, which is down slightly from 3.1 MMT last year, in an effort by the government to incentivize self-sufficiency in domestic food production, reports Reuters. However, Indonesian demand for corn has grown over the past several years and Desianto Utomo of the Indonesian Feedmills Association has voiced concern with the reduction, stating that Indonesia “should be importing 3.5 MMT.” The country’s 32 feedmills can handle 21.5 MMT (24 MMT by the end of 2015) annually, but are currently running at only 75-80 percent capacity.
9. Ocean Freight Comments
Jay O’Neil, O’Neil Commodity Consulting: Ocean freight markets are still steaming in circles. The attempted rally of last week was short lived as things settled back this week. The incremental moves of this market are quite small. No excitement yet.
The charts below represent January-December 2014 annual totals versus year-to-date 2015 container shipments to Malaysia.