Market Perspectives - May 15, 2015

1. Chicago Board of Trade Market News

Outlook: USDA published their first estimates of 2015/16 crops in the May 12 WASDE report. U.S. ending stocks are expected to decline slightly for both corn and sorghum during the 2015/16 season, which will begin on September 1 for each of these crops.

The current 2014/15 season is forecast to close with U.S. ending stocks of corn at 1.851 billion bushels. The 2015/16 corn crop, that is currently being planted, is tentatively estimated to produce an average yield of 166.8 bushels per acre. This is a sizable yield, but down 4.2 bushels per acre from last year. Reduced yield and acreage is forecast to produce a smaller corn crop than last fall’s record, but that is basically offset by the sizable corn stocks that are being carried over from this season.

The comfortable carryover of feed grains reserves from this season into the 2015/16 crop year is anticipated to result in a slight increase in global supplies. However, USDA notes that this is dependent on both the United States and China each producing another large crop. The May WASDE specifically states that 90 percent of the variability in U.S. corn yields is determined by precipitation and temperatures during the month of July. 

3. U.S. Weather/Crop Progress

Crop Planting

U.S. Drought Monitor Weather Forecast: Over the next seven days, temperatures over the eastern United States are anticipated to be above-normal with departures of up to 6 degrees. Most of the rest of the United States will have temperatures at or below normal, with the greatest departures (up to 9 degrees below normal) over the west coast. An active pattern looks to continue over much of the Plains states and into the Southeast. Precipitation forecast amounts of more than 6 inches are being projected over east Texas and up to 3 inches through the Dakotas. The latest seven-day projections have precipitation chances over almost the entire country.

The 10-day outlooks show the likelihood of above-normal temperatures over the southeast and Pacific Northwest, while there are above-normal chances of temperatures being below normal through the Plains, Midwest and Southwest. There are below-normal chances of precipitation over the upper Midwest and Great Lakes regions. A good portion of the United States has above-normal chances of seeing precipitation above normal, with the best chances over the Southeast and Great Basin. 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 Grain Inspections

Corn: Net sales of 370,000 MT for delivery in 2014/15--a marketing-year-low--were down 56 percent from the previous week and 53 percent from the prior four-week average. Increases were reported for Japan (189,400 MT, including 137,800 MT switched from unknown destinations and decreases of 8,400 MT), Saudi Arabia (144,700 MT, including 75,800 MT switched from unknown destinations and decreases of 100 MT), Mexico (121,900 MT), Colombia (108,600 MT, including 30,800 MT switched from unknown destinations and decreases of 300 MT), Taiwan (78,700 MT) and Guatemala (41,200 MT, including 38,200 MT switched from unknown destinations). Decreases were reported for unknown destinations (245,600 MT), Iran (66,000 MT) and South Korea (60,200 MT). Net sales of 2,600 MT for 2015/16 resulted as increases for Jamaica (8,600 MT), were partially offset by decreases for Nicaragua (6,000 MT). Exports of 1,109,300 MT were down 2 percent from the previous week, but up 3 percent from the prior four-week average. The primary destinations were Japan (358,400 MT), Mexico (217,100 MT), South Korea (114,200 MT), Colombia (110,100 MT), Saudi Arabia (75,700 MT) and Peru (43,700 MT).

Barley: There were no sales reported during the week. Exports of 500 MT were reported to Japan (300 MT) and Taiwan (200 MT).

Sorghum: Net sales of 40,300 MT for 2014/15 resulted as increases for China (153,300 MT, including 113,000 MT switched from unknown destinations and decreases of 500 MT), were partially offset by decreases for unknown destinations (113,000 MT). Net sales of 108,000 MT for 2015/16 were reported for China (54,000 MT) and unknown destinations (54,000 MT). Exports of 165,800 MT were down 27 percent from the previous week and 31 percent from the prior four-week average. The destination was China. 

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: The nearby rate for bulk DDGS at the Gulf of Mexico was unchanged, but the price in more distant months moved higher. Domestic buyers found that DDGS prices were higher by $4/MT or more in all months into the future. Rail delivered rates to California were up the most, by more than $10/MT. This domestic price action stood in contrast to the unchanged offers being presented to Asian buyers of containerized DDGS. One reason for this better offer to Asian buyers is because domestic purchasers are active primarily in the nearby spot market. DDGS merchandisers simply need to charge a higher rate when inventory flow is less certain.

Asian buyers seem to recognize that merchandisers are ready to work with them.  As a result, one merchandiser reported that he was able to sell 13,400 MT to Vietnam, Taiwan, China and Korea for shipment from June through August. 

Ethanol Comments: A favorable development this past week was a substantial decline of 17 percent in total U.S. ethanol stocks compared to the year-ago level. This is important because ethanol prices tend to be weighed down whenever stocks are larger than the year-ago level by more than 20 percent. Further good news is found in the fact that weekly stocks declined by 2.2 percent, to 20.3 million barrels. This decline in ethanol stocks occurred while daily average production increased to a rate of 912,000 barrels per day (bpd). This does not seem to be an aggressive production rate as it is the same as the four-week average and below the year-ago production level of 922,000 bpd.

In the immediate near-term, there is unlikely to be any substantial increase in ethanol production because the differentials between the spot price of corn and the co-products gives little indication of improved financial conditions for ethanol producers in primary regions of the U.S. Corn Belt. Those differentials are as follows for week ending May 15, 2015:

  • Illinois differential is $2.49 per bushel in comparison to $2.59 the prior week and $3.45 a year ago.
  • Iowa differential is $2.39 per bushel in comparison to $2.30 the prior week and $3.27 a year ago.
  • Nebraska differential is $2.18 per bushel in comparison to $2.18 the prior week and $3.10 a year ago.
  • South Dakota differential is $2.61 per bushel in comparison to $2.53 the prior week and $3.74 a year ago.

7. Country News

Africa: The UN’s World Food Program has announced that Zimbabwe is likely to face large food security issues this year as it has lost 300,000 hectares of its corn crop (23 percent of land under cultivation) due to mid-season droughts, reports Bloomberg News. Furthermore, Malawi, Mozambique and Madagascar are also facing food shortages. Botswana’s crop has been described as showing signs of “total failure.”

Further, South Africa (the continent’s largest corn producer) is currently undergoing its worst drought since 1992, which is inflicting a potential 32 percent drop in corn production and has caused yellow corn prices to jump by 12 percent. South Africa is traditionally a major supplier of corn for southern Africa, and its troubles could ripple across the region. Reuters is reporting that South Africa is likely to import GM corn from Brazil and Argentina to supplement drought-blighted domestic supplies.

Argentina: Construction workers at the grain exporting hub of Rosario blocked truck delivery access to some terminals earlier this week in an effort to disrupt grain flow, according to Reuters. The cause of the strike was the suspension of a major construction project that impacted 1,300 workers. The strike comes at a time of the year when grain exports are high during the middle of the corn harvest, but protests would have to be long in duration to have a major impact as the ports generally have large stocks on hand. 

8. Ocean Freight Markets and Spread

Bulk Freight

9. Ocean Freight Comments

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: I cannot say that world ocean freight markets really did much this week. It was mostly a continuing situation of sailing in circles. The Capesize iron ore market did rally about $1.00/MT on the western Australia-to-China route, but other markets just tried to limit the negative news. Most news stories continue to discuss the oversized fleet and how much time it will take to soak up the excess of ships. The uncertainty over the world economic picture just makes the calculations all the more difficult.

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

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

Thailand 2015
Thailand 2014
Intl Freight Rates

10. Interest Rates

Interest Rate