1. Chicago Board of Trade Market News
Outlook: USDA released the June WASDE this week and the report’s data contained no surprises for feed grains. Beginning stocks estimates for the 2015/16 were adjusted higher for U.S. corn, oats and barley: corn beginning stocks increased by 25 million bushels, oat’s increased 2 million bushels and barley beginning stocks were reduced 1 million bushels. The reason that corn beginning stocks were adjusted higher is because the estimate for ethanol usage of corn in the current 2014/15 crop year was reduced by 25 million bushels. That reduction is then carried over into the corn balance sheet for the 2015/16 season, which will begin on September 1. USDA predicts that none of these small adjustments will have any influence upon farm prices.
Near-term feed grain prices could be substantially influenced by the contents within USDA’s Acreage report that will be released on June 30. There is a general expectation among market participants that U.S. corn acreage will decline in this upcoming report. Therefore, those traders who currently hold large short positions in corn futures, which are trading near contract lows, may be particularly reluctant to continue selling before acreage and crop conditions becomes more certain. The outlook is that corn futures will become increasingly volatile during next two weeks and likely work somewhat higher as various traders reduce the size of their short positions.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: For the upcoming period of June 12-15, moderate-to-heavy precipitation (1.5 to 4 inches) is expected from the central Rockies and south-central Plains northeastward into western New England. Light-to-moderate rains are also predicted along the central and eastern Gulf Coast, while unseasonable rains (up to 1.5 inches) are forecast for the Sierra Nevada and Great Basin. Moisture from the remnants of Pacific Hurricane Blanca triggered showers across most of the Southwest (including California) on June 9 and 10. Elsewhere, little-or-no rain is expected in the Northwest and desert Southwest, with only light totals in the southern Great Plains, Tennessee Valley and along most of the Atlantic Seaboard (except Florida). Temperatures should average above-normal in the Far West, northern Rockies and Plains, Ohio Valley and mid-Atlantic. Subnormal readings are expected from the Southwest northeastward into the Great Lakes region, with seasonable temperatures elsewhere.
For the ensuing period of June 16-20, the CPC 10-day precipitation outlook favors above-median chances in the Nation’s midsection (Plains and Midwest) and Northeast, with sub-median precipitation likely in the Northwest and Southeast. Above-normal temperatures are favored in most of the lower-48 States with subnormal readings likely in the Pacific Northwest. 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 495,600 MT for delivery in 2014/15 were up 7 percent from the previous week, but down 14 percent from the prior four-week average. Increases were reported for South Korea (157,500 MT, including 103,000 MT switched from unknown destinations and 55,000 MT switched from Taiwan), Japan (133,200 MT, including 48,800 MT switched from unknown destinations and decreases of 73,400 MT), Peru (72,300 MT, including 40,000 MT switched from unknown destinations and decreases of 5,200 MT), Mexico (59,200 MT), Panama (46,700 MT, including 18,300 MT switched from unknown destinations and decreases of 2,000 MT), Taiwan (31,100 MT) and Egypt (22,000 MT, including 20,000 MT switched from unknown destinations). Decreases were reported for unknown destinations (114,900 MT). Net sales of 115,500 MT for 2015/16 reported for Mexico (118,200 MT), unknown destinations (50,800 MT), El Salvador (1,000 MT) and South Korea (500 MT), were partially offset by decreases for Japan (55,000 MT). Exports of 826,100 MT were down 14 percent from the previous week and 22 percent from the prior four-week average. The primary destinations were Mexico (241,700 MT), Taiwan (142,700 MT), South Korea (111,200 MT), Japan (103,500 MT, including 8,900 MT late reporting), Peru (62,800 MT) and Colombia (53,100 MT).
Barley: There were no net sales for the 2015/16 marketing year, which began June 1. A total of 3,900 MT in sales were carried over from the 2014/15 marketing year, which ended May 31. Exports for the period ending May 31 of 700 MT brought accumulated exports to 144,700 MT, down 18 percent from the prior year’s total of 176,300 MT. The primary destinations were Japan (400 MT) and South Korea (300 MT). Exports for June 1-4 totaled 400 MT, all Japan.
Sorghum: Net sales reductions of 500 MT for 2014/15 were reported for China. Exports of 54,400 MT--a marketing-year low--were down 74 percent from the previous week and 66 percent from the prior four-week average. The destination was China.
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS prices are in decline, and merchandisers are receiving requests for even lower prices from their customers. The DDGS merchandisers would not mind such circumstances if buyers also increased their bids when prices go up. Of course, that is not the way things work. DDGS merchandisers are striving to maintain long-term business relationships and will work with their favored customers who stick with contracts – and the merchandisers will help those clients receive the best prices they can offer on their future purchases.
This week, merchandisers offered both foreign and domestic buyers price reductions of an additional $15/MT. Discussions about hesitant demand encouraged this week’s sharp decline in DDGS prices. The decline in corn futures contracts at the end of this week may enable merchandisers to offer even lower DDGS prices at the beginning of next week. However, it should be noted that USDA’s Acreage report will be released on June 30, and there is a common expectation that data within that report will indicate a reduction in U.S. corn acreage. As a result, the price of corn futures may strengthen as the date of that report approaches.
Ethanol Comments: The average daily rate of ethanol production increased to 992,000 barrels per day (bpd) for the week ending June 5. The prior-week’s rate of production was 972,000 bpd. These recent increases in production have been occurred because sufficient demand has enabled U.S. ethanol stocks to remain stable. The most recent stocks level of 20.2 million barrels is virtually unchanged from the prior week’s level of 20.1 million barrels and less than 10 percent above the year-ago level of 18.4 million barrels.
Modest but consistent declines in ethanol producer margins may cause the production rate to plateau, or even decline in the coming weeks. The differentials between the spot price of corn and ethanol co-products imply that near-term margins for ethanol facilities may see a slight decline. The differentials for the week ending June 12, 2015 are as follows:
- Illinois differential is $2.03 per bushel, in comparison to $2.19 the prior week and $3.53 a year ago.
- Iowa differential is $1.91 per bushel, in comparison to $1.98 the prior week and $3.33 a year ago.
- Nebraska differential is $1.64 per bushel, in comparison to $1.69 the prior week and $3.23 a year ago.
- South Dakota differential is $2.25 per bushel, in comparison to $2.31 the prior week and $3.76 a year ago.
7. Country News
Brazil: Brazil’s corn crop is predicted to total 81 MMT this year as bountiful precipitation has ensured high yields, according to Bloomberg News. However, farmers may have trouble exporting corn to their fullest potential due to Brazil’s limited port capacity.
China: The Chinese government’s State Administration of Grain is predicting that the government’s corn stockpiles may rise to a record level of 102 MMT (up 4 MMT from a May forecast) and has not yet determined the domestic price, reports Reuters. Domestic corn sales are struggling because of the gap between internal and external prices, which has led to an increase in barley and sorghum imports. Barley imports are set to be 7.5 MMT in 2014/15, which is up from 4.3 MMT last year while sorghum imports will total 8.5 MMT compared to 3.4 last year.
Iraq: Senior Grain Board of Iraq official Saad al Hamdinee is reporting that government forces have recaptured grain silos previously seized in the Islamic State’s offensive last year, according to Reuters. Most of the grain held in the silos is now unusable due to militants sabotaging it in their retreat. The areas recaptured include grain-growing locations such as the town of al-Alam that produces 60,000 MT of grain and fertile land around Samarra that produces 120,000 MT annually. Mr. Hamdinee indicated that the government would seek to salvage the storage facilities to whatever extent possible.
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: The Baltic indices turned upward this week and, for a change, sustained a small rally day-after-day this week. The 11-15 percent increase in the Baltic-Panamax index looks substantial, but one must remember that we started from a very-low level and small increases will equate to big looking percentages.
As often happens, the nearby physical markets did not get as excited as the Baltic time charter indices and therefore did not run up as much. The improved freight interest is primarily coming from the Panamax and smaller vessel sector down in the East Coast South American market. The Capesize trade tried, but failed, torally this week and ended up at the low side of the weekly rate range. I don’t see any sustainable support under these markets and therefore would expect things to roll back to previous levels in the coming weeks.
The charts below represent January-December 2014 annual totals versus year-to-date 2015 container shipments to Hong Kong.