Market Perspectives October 1, 2015

1. Chicago Board of Trade Market News

Week in Review

Outlook: USDA published the quarterly U.S. Grain Stocks report on Wednesday, September 30 and it was considered neutral for feed grains. The Grain Stocks report offers a snapshot of total U.S. stocks on September 1 and projects that there were 1.73 billion bushels of corn, which was slightly smaller than the average analyst estimate of 1.735 billion bushels. The total 1.73 billion bushels of corn on September 1 was 41 percent above the year-ago level. However, that is not a bearish factor because last season’s record crop was not yet harvested. Furthermore, the disappearance during the June-August time period was larger this season at 2.72 billion bushels, above the prior-year’s usage during that same time period of 2.62 billion bushels. Naturally, the higher usage was encouraged by lower prices.

Sorghum is not expected to act as a competitive constraint against the price of corn moving higher since the September 1 stocks of 18.6 million bushels were down 46 percent from the prior year’s level. Furthermore, the majority of reduction in sorghum stocks was at off-farm locations; that same condition of reduced stocks at off-farm locations also exists for corn. These circumstances imply that farmers are willing to maintain a certain level of stocks from one season to the next, and if that inventory is to be enticed away it will need to be with higher prices. 

2. CBOT Corn Futures

December Corn Futures

CBOT Table

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

U.S. Crop Condition

U.S. Drought Monitor Weather Forecast: The complex interaction between a blocking high over eastern Canada, a stationary upper-air low over the Southeast, and Hurricane Joaquin (or the remnants of) will bring the threat of heavy rain to the eastern third of the nation. Rainfall may total 3 to 4 inches (locally much more) across the Southeast, Mid Atlantic, and Northeast, pending the final track of Joaquin. Meanwhile, dry weather is expected from Texas into the upper Midwest. Farther west, a Pacific storm system will move ashore, bringing the potential for locally heavy showers from central and northern California into the northern Rockies. Dry weather is expected over the Southwest, though some late-season showers may arrive in the Four Corners at the end of the period. The NWS 6- to 10-day outlook for October 6-10 calls for above-normal precipitation and near- to above-normal temperatures nationwide, with drier-than-normal conditions confined to the lower 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

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

Corn: Net sales of 748,200 MT for 2015/2016 were up 76 percent from the previous week. Increases reported for Mexico (638,600 MT, including 23,000 MT switched from unknown destinations and decreases of 2,400 MT), Egypt (68,700 MT, including 65,000 MT switched from unknown destinations), Colombia (42,200 MT, including 25,300 MT switched from unknown destinations and decreases of 1,800 MT), Guatemala (41,100 MT), and Venezuela (29,900 MT, including 30,000 MT switched from Panama and decreases of 100 MT), were partially offset by decreases for unknown destinations (80,800 MT) and Panama (30,000 MT). Net sales of 53,100 MT for 2016/2017 were reported for Panama (51,900 MT) and Honduras (1,200 MT). Exports of 813,800 MT were up 2 percent from the previous week. The primary destinations were Mexico (233,200 MT), Japan (206,400 MT), Colombia (111,700 MT), Egypt (68,700 MT), Venezuela (59,900 MT), Peru (30,500 MT), and Taiwan (29,300 MT).

Barley: Net sales of 100 MT for 2015/2016 were reported for Taiwan. Exports of 600 MT were reported to Taiwan.

Sorghum: Net sales of 163,600 MT for 2015/2016 resulted as increases for China (330,600 MT, including 167,000 MT switched from unknown destinations), were partially offset by decreases for unknown destinations (167,000 MT). Exports of 284,100 MT were up 68 percent from the previous week and 86 percent from the prior 4-week average. The destinations were China (281,100 MT) and Mexico (3,000 MT). 

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: A number of DDGS end users are patiently waiting for increasing U.S. harvest pressure to force the price of corn back down. That strategy can work if increased selling by U.S. farmers causes corn futures contracts to return a portion of the 30-cent per bushel rally that has occurred since the first week of September. However, a complete return to those prior low prices seems unlikely because a sizable amount of waiting demand is implied by the increased buying of corn futures contracts approximately 15 cents below current prices. As a matter of fact, that waiting demand below current price levels seems to be a major reason for the rebound in corn contracts since the first of September. Furthermore, the preceding Outlook section of this report notes that total corn consumption has increased this past summer above the year-ago rate. Such evidence supports the notion that global buyers are attracted by recent prices.

Concentration of certain nutritional benefits is one advantage that DDGS has over corn that can allow for reduced transportation costs. This is a factor that can cause demand for DDGS to increase more sharply once it becomes evident that corn prices have limited downside remaining. Cash grain prices may remain flat for several months as the newly harvested crop is placed into storage. However, it is at that point that DDGS can rebound quicker because it is produced more uniformly throughout the year. Therefore, the savvy buyer of DDGS is attempting to purchase when the price of corn is at a low, but before the spread between the price of DDGS and corn starts to widen out.

Ethanol Comments: The U.S. national average price of regular gasoline decreased for a sixth week in a row to $2.32 per gallon, but this period of price decline may be coming to an end: The price of WTI crude oil increased by 84 cents to $45.55 per barrel for the week ending September 25, 2015. Stability in the price of crude should eventually influence the price of gasoline – and then the price of ethanol.

Total U.S. ethanol stocks of 18.8 million barrels are exactly the same size as the year-ago level even though the current average daily production rate of 943,000 barrels per day (bpd) is more than seven percent larger than the year-ago production rate. This fact seems to imply stable consumption. A further positive point of consideration is that U.S. ethanol imports have fallen back off to zero, after temporarily increasing last week to an average daily rate of 44,000 bpd.

Considering that U.S. ethanol stocks are presently identical to last year, the differential between the spot market price for corn and the bi-products of ethanol and DDGS appears to have room to strengthen more, as can be seen in the data for the week ending September 25, 2015: 

  • Illinois differential is $1.79 per bushel, in comparison to $1.68 the prior week and $2.28 a year ago.
  • Iowa differential is $1.58 per bushel, in comparison to $1.45 the prior week and $2.07 a year ago.
  • Nebraska differential is $1.64 per bushel, in comparison to $1.45 the prior week and $1.79 a year ago.
  • South Dakota differential is $1.86 per bushel, in comparison to $1.72 the prior week and $2.26 a year ago.

Increased Ethanol Exports: U.S. fuel ethanol exports climbed in July, putting shipments for the year 705,000 barrels ahead of the same period last year. Compared to ethanol exports for the past five years, 2015 sales are at the second fastest clip since 2011 – when the U.S. exported 28.4 million barrels. Notably, the increase in ethanol exports from June to July outpaced the increase in export sales of U.S. finished gasoline over the same period. The chart below shows the most recently available data covering U.S. ethanol exports.

7. Country News

Australia: Exports of barley from Australia to China have increased by 82 percent over the past five years, and sorghum exports have grown by 2,000 percent. Loren Puette of market intelligence firm China Ag’s says there is concern that this trade has now plateaued. However, James Cook University’s Zhangyue Zhou believes that China’s large corn stocks are not a threat to Australia’s exports because of the quality issues with Chinese product. (ABC Rural)

Botswana: Botswanan officials report that despite having good reserve stocks of sorghum, the country will need to import white maize from Zambia and yellow maize from South Africa. Sorghum is more of a food staple in Botswana than maize, so imports will probably not total more than 5,000- 6,000 MT. (WPI)

Brazil: Shipping agency Williams Brazil says that corn shipments totaled 9.4 MMT, up from 8.3 MMT during the week of September 22. This includes shipments from 13 ports including Santos, Brazil’s largest. (Bloomberg)

China: With surplus production this year alone at 55 MMT, the government will auction off 2.3 MMT of corn next week at a price that will likely be lower than the $314/MT it paid to acquire it. The government will pay 10 percent less for corn starting in November, which is expected to help out processors. Industry analyst Wang Baoquan of yumi.com.cn says processing capacity could grow by 10 percent with corn sweetener taking market share away from sugar. Meanwhile, importers of barley are having to pay about two percent more as a result of the recent yuan devaluation. (Bloomberg; Dow Jones)

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: There were no big changes in global freight markets this week. Overall the Dry-Bulk market remains soft. The Baltic Indices gave up some of their past gains and most physical rates remained unchanged. Vessel owners can only wait and hope that the North American Fall harvest will add a little excitement to things. However, any potential bump in cargo demand will likely be only temporary.

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 Thailand.

Thailand Shipment Chart 1
Thailand Shipment Chart 2
International Freight Rates for Feed Grains

10. Interest Rates

Interest Rates