Market Perspectives September 18, 2015

1. Chicago Board of Trade Market News

Week in Review

Dear Market Perspectives Readers: Please note that starting next week the U.S. Grains Council’s Market Perspectives report will be published on Thursday afternoons instead of Friday. The first Thursday edition will be published on Thursday, September 24, 2015. We appreciate your continued interest in this publication!  

Outlook: The December corn contract started off the week strong but the recent upward momentum ran out of steam. Fundamental factors were not strong enough to keep the December 2015 corn contract elevated above $3.90 per bushel prior to harvest. Furthermore, current chart patterns encouraged technical traders to test corn contracts for additional price weakness during the second half of this week. In doing so, they may have created a short term buying opportunity for end users of corn.

The approach of harvest and the momentary exiting of long positions by large speculators are having somewhat of a bearish impact on prices, but the present decline will eventually slow as buying increases in the more distant corn contracts. It is even possible that this week’s lower price action is a 3 to 4 day setback within a market which still has more upside. Therefore, end users of feed grains are encouraged to actively monitor corn contracts and to be nimble in purchasing, as March corn seems destined to spend some more time above $4.00 bu. this spring. The ability to currently purchase the March 2016 corn contract well below $4.00 per bushel is assumed to be a temporary buying opportunity; there seems to be a good probability that that contract will be trading higher than its current price next spring.

2. CBOT Corn Futures

December Corn Futures

CBOT Graph

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

U.S. Drought Monitor Weather Forecast: For the immediate period, precipitation remains light for much of the CONUS. Several smaller systems track from the Northwest through the High Plains and exit out into Canada just north of the Great Lakes. For the next 6-10 day period, chances of above average temperatures are likely for the majority of the CONUS. The greatest chances are in the High Plains and down into the Great Basin and Southern California. Chances are likely that a small portion of the Northwest will experience below normal temperatures. Chances of below normal precipitation are likely for the Midwest, Great Lakes and Northeast regions. The probability of precipitation increases to the northwest and southwest. 

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 and Exports
U.S. Export Inspections
USDA Grain Inspections for Export

Corn:  Net sales of 533,000 MT for delivery in 2015/2016 were reported primarily for Mexico (381,00 MT, including 9,700 MT, late reporting), Japan (55,000 MT, including 5,000 MT switched from unknown destinations and decreases of 1,900 MT), Peru (39,500 MT, including 30,000 MT switched from unknown destinations),Taiwan (35,900 MT), and Costa Rica (23,300 MT, including 20,500 MT switched from unknown destinations), were partially offset by decreases for unknown destinations (25,100 MT), Colombia (18,300 MT), and Panama (5,000 MT).  Exports of 806,600 MT were primarily to Mexico (346,400 MT, including 9,700 MT late reporting), Japan (192,200 MT), South Korea (60,700 MT), Peru (60,000 MT), Canada (46,400 MT), Colombia (40,600 MT), and Costa Rica (21,300 MT).

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

Sorghum: Net sales of 3,400 MT for 2015/2016 resulted as increases for China (57,400 MT, including 54,000 MT switched from unknown destinations and decreases of 600 MT), were partially offset by decreases for unknown destinations (54,000 MT).  Exports of 108,900 MT were to China (107,400 MT) and Mexico (1,500 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: Movement of DDGS inventory remains slow as buyers patiently wait for lower prices to materialize. The lower corn prices that occurred this past week in Chicago futures and in China seems to have increased the confidence of DDGS buyers that patiently waiting is the most appropriate strategy. Yet as the preceding market commentary notes (please see above), it is entirely possible that the past four-day decline in Chicago futures could be a temporary downward move in a market that will again trade higher. Such a technical chart pattern is not at all uncommon in Chicago futures as profit taking occurs. Therefore, buyers of DDGS are encouraged to monitor corn contracts and maintain active pricing discussions with DDGS merchandisers.

This week’s DDGS pricing implies that merchandisers are skeptical that the price of U.S. corn has much further to fall, as domestic and bulk DDGS increased approximately $3/MT. Alternatively, buyers of containerized DDGS were offered a substantial $13/MT discount, but only for nearby purchases in the month of October. This seems to indicate that there is some inventory that merchandisers are anxious to move because the price of containerized DDGS in November and December declined by less than $3/MT.

Ethanol Comments: Chinese President Xi Jinping will visit the United States next week and it would not be overly surprising if he announced the purchase of some quantity of U.S. ethanol. After all, Chinese buyers have already imported 126,000 MT of ethanol in 2015 (as reported by Reuters) which was almost five times the amount they purchased the prior year. Such growing demand has occurred because U.S. ethanol sells at an attractive discount to China’s own domestically produced ethanol. This occurs because China’s internal corn prices are far above the global rate and that has resulted in Chinese ethanol facilities running at about half capacity.  It is cost effective for the 11 provinces that are required to blend ethanol with their gasoline to consider adding U.S. ethanol into the mix.

Export demand for U.S. ethanol seems a key reason that total stocks are able to continue declining even while production levels remain sizable: Total U.S. ethanol stocks for week ending September 11, 2015 fell to 18.3 million barrels from the prior week’s level of 18.6 million barrels.  Even more important, this stocks level is 2.7 percent below the prior year’s level of 18.8 million barrels. Note that it has been a long time since total U.S. ethanol stocks were below the year-ago level!

The decline in ethanol stocks occurred even though the average daily production rate increased to 961,000 barrels per day (bpd) from the prior week’s average daily rate of 958,000 bpd.  This rate is also above the year-ago average of 931,000 bpd.   Such developments seem positive, and hopefully better margins will follow.  The differential between the spot market price for corn and the co-products of ethanol and DDGS seem to imply that margins still have not strengthened during the week ending September 18, 2015:

  • Illinois differential is $1.68 per bushel in comparison to $1.66 the prior week and $2.40 a year ago.
  • Iowa differential is $1.45 per bushel in comparison to $1.61 the prior week and $2.19 a year ago.
  • Nebraska differential is $1.45 per bushel in comparison to $1.54 the prior week and $2.09 a year ago.
  • South Dakota differential is $1.72 per bushel in comparison to $1.85 the prior week and $2.48 a year ago.

7. Country News

South Africa: Drought has driven the price of yellow corn to its highest level in 19 years, to $218 (2,957 rand) per metric ton. White corn, at $238 (3,229 rand) per metric ton has risen in price six days in a row. The outlook remains dry. (Bloomberg)

France: Ecology Minister Segolene Royal and Agriculture Minister Stephane Le Foll announced that France plans to opt out of the authority from Brussels to grow nine different corn GMO events. (Wall Street Journal)

Vietnam: Prime Minister Nguyen Tan Dung announced a two-step plan to boost the use of E5 and E10 ethanol blended petrol. First will be an education program to inform consumers of ethanol’s benefits, and second will be a Ministry of Finance study on creating a preferential tax program to reduce the cost of E5 and E10. (Biofuels Digest)

India: The production of summer-sown corn will fall more than 15 percent this year as a result of back-to-back drought years. Larger production in India’s northern states is not enough to offset the losses in southern states. (Reuters)

8. Ocean Freight Markets and Spread

Bulk Freight Indices for HSS

9. Ocean Freight Comments

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: It was a bit of a mixed picture in global freight markets this week with the Baltic Freight Indices sliding back in the Atlantic and Mediterranean markets but firming in the Pacific. The Baltic Dry-Bulk Index in the Atlantic did post an uptick on Thursday night, and we will have to see if that can hold into next week. Once again the physical freight markets chose not to follow the rally in the Baltic indices and remain suspicious and defensive. U.S. harvest weather is excellent and we will see a good increase in soybean and corn harvest activity over the next two weeks. The big question is: will better corn and soybean supply and cheap prices encourage a significant uptick in export demand?

Baltic-Panamax Dry-Bulk Indices
Below is a recent history of freight values for Capesize vessels of iron ore from Western Australia to China:
Capesize Iron Ore
U.S.-Asia Market Spreads

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

Malaysia Container Shipment Chart 1
Malaysia Container Shipment Chart 2
International Freight Rates for Feed Grains

10. Interest Rates

Interest Rates