Market Perspectives October 8, 2015

1. Chicago Board of Trade Market News

Week in Review

Outlook: The estimate for the average U.S. corn yield will be the variable of primary importance within USDA’s data that will be published on Friday, October 9, 2015. The previously released stocks data held no major surprises and it is still too early in the 2015/16 crop year to make significant changes to demand estimates. The expectation is that the October estimate for average U.S. corn yields will be 166.4 bushels per acre (bpa) per a recent survey conducted by Dow Jones. This would be a 1.1 bpa decline from the September estimate of 167.5. However, variability in yields throughout the Corn Belt has resulted in a range of pre-report predictions among analyst of 161 to 169.6 bpa. An October estimate below 165 bpa is expected to support prices and anything above 167 could result is a retest of the prior August low. An October yield estimate within the range of 165 to 167 bpa could most likely result in corn contracts creating a horizontal trading range that will extend into the first of December, at which point total demand can be better defined.

A second potentially price influencing factor will be the estimate for harvested corn acreage. Market participants are expecting USDA’s October data to show a small decline in total corn acreage to 80.9 million acres from the September estimate of 81.1 million acres. A price influencing surprise could result from any reduction below 80.5 million bushels, or any increase in U.S. corn acreage. The outlook is that it will be the composite of changes to both yield and acreage that will determine the full influence on near-term prices, as these two price influencing factors could either support or offset each other. Demand and South American weather will then become increasingly important as the year-end approaches.

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: For the upcoming 5-day period (October 8-12), mostly light (0.25-0.75 inches) precipitation will occur in the eastern third of the Nation, with totals of up to 1-1.5 inches possible in the northern Rockies, Great Lakes region, central Appalachians, and eastern Florida. Farther west, heavy precipitation (1-3 inches) is expected in the southern High Plains and Rio Grande Valley, and 2-7 inches in western Washington. Elsewhere, little or no precipitation is expected. Temperatures across the lower 48 States will average above normal, especially in the West and Plains.

For the ensuing 5 days (October 13-17), the odds favor above-median precipitation from the Southwest northeastward into the central Corn Belt. In contrast, sub-median precipitation is favored in the Northwest and Southeast. A strong tilt toward above-normal temperatures is expected in the western half of the U.S., with lower but still above-normal odds in the eastern half of the nation.

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 519,700 MT for 2015/2016 were down 31 percent from the previous week.  Increases reported for Mexico (338,300 MT), Panama (52,200 MT), Bangladesh (44,000 MT, including 40,000 MT switched from unknown destinations), Jamaica (43,000 MT), and Japan (37,200 MT, including 10,400 MT switched from unknown destinations and decreases of 24,000 MT), were partially offset by decreases for unknown destinations (50,300 MT) and Taiwan (1,800 MT).  Net sales reductions of 53,100 MT for 2016/2017 were reported for Panama (51,900 MT) and Honduras (1,200 MT).  Exports of 489,900 MT were down 40 percent from the previous week.  The primary destinations were Mexico (184,100 MT), Japan (120,900 MT), Bangladesh (44,000 MT), Colombia (31,300 MT), Guatemala (31,200 MT), Panama (21,100 MT), and El Salvador (17,000 MT).

Barley: Net sales of 500 MT for 2015/2016 were reported for Japan (300 MT) and South Korea (200 MT).  There were no exports reported during the week.

Sorghum: Net sales of 4,000 MT for 2015/2016 resulted as increases for Venezuela (49,400 MT, including 50,000 MT switched from China and decreases of 600 MT), China (6,600 MT), Indonesia (600 MT), and Japan (400 MT), were partially offset by decreases for unknown destinations (53,000 MT).  Exports of 353,000 MT were up 24 percent from the previous week and 67 percent from the prior-4 week average.  The destinations were China (294,600 MT), Venezuela (49,400 MT), Japan (4,500 MT), and Mexico (4,400 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: The overall implication of this week’s price action is that DDGS buyers are being presented pricing opportunities by merchandisers who presently desire to increase their volume sold. For example, consider the fact that DDGS prices have recently weakened while corn futures contracts strengthened. This is one indicator that merchandisers have abundant inventory that they desire to move. A second potential indicator of this circumstance is the discount for October DDGS prices.

DDGS inventories at ethanol facilities have increased in part because of a common expectation among buyers that harvest will press corn contracts back down toward the lows that occurred in August. However, the Outlook section of this report explains the circumstances that are necessary for that even to happen. It is possible that DDGS buyers could be waiting on corn pricing conditions that are not going to develop if total U.S. corn production declines. Therefore, it may be advantageous to consider the ebb and flow of DDGS inventories when creating purchasing strategies. It is possible for DDGS prices to decline even if the price of corn remains flat, but that condition is not permanent. 

Ethanol Comments: The current 2015/16 crop year for U.S. corn is only about five weeks old, yet some market participants are touting the fact that the sales pace for corn exports is slower than normal. Presently about only about 23 percent of USDA estimated total U.S. exports of 1.85 billion bushels has been sold when the normal amount sold by this time is closer to 45 percent. This slower sales pace is primarily the result of many global end users purchasing corn in a hand-to-mouth manner because of the expectation that the U.S. corn harvest will again force prices back down. The correctness of this assumption will be better defined after USDA data is published on October 9, 2015. The key point being, this circumstance has granted more time for ethanol facilities to define their purchasing strategies while U.S. gasoline prices stabilize. The average retail price of U.S. gasoline decreased for the seventh week in a row to $2.318 per gallon on October 5, as reported by the U.S. Energy Information Administration (EIA).

Total U.S. ethanol stocks remained unchanged from the prior week at 18.2 million barrels. A positive note is that this amount is slightly below the year-ago stocks of 18.7 million barrels. This occurred even as the currently average daily production rate of 950,000 barrels per day (bpd) increased above the prior week’s level of 943,000 and is 5.4 percent above the year-ago average daily rate of 901,000 bpd. Additionally, the stable stocks level exists even though ethanol imports returned with an average rate of 17,000 bpd.

The differential between the combined market returns for ethanol and DDGS and the price of corn does not imply that margins will incentivize ethanol facilities to increase production. The following data show that the differentials in three of the four regions of the Corn Belt declined for the week ending October 2, 2015 and remain below a year ago: 

  • Illinois differential is $1.72 per bushel, in comparison to $1.79 the prior week and $2.12 a year ago.
  • Iowa differential is $1.54 per bushel, in comparison to $1.58 the prior week and $1.99 a year ago.
  • Nebraska differential is $1.70 per bushel, in comparison to $1.64 the prior week and $1.84 a year ago.
  • South Dakota differential is $1.74 per bushel, in comparison to $1.86 the prior week and $2.18 a year ago.

7. Country News

Argentina: Corn and wheat planted area this year will be 1.5 million hectares smaller than last year. That forecast is a 20 percent larger drop than forecast by the Buenos Aires Grain Exchange. Lower global corn prices combined with high taxation by the government have reduced profitability for these crops. (Agrimoney)

Australia: Market analysts Green pool Commodity Specialists predicts that this year’s El Nino will cause global sugar output to fall 5.6 MMT short of demand, the worst supply deficit in six years. This could affect ethanol production and prices have rallied as a result of the short crop.

Canada: Statistics Canada forecasts 2015/16 barley production will be 7.6 MMT, a nearly 7 percent increase over 2014/15. USDA’s September report pegged Canadian barley at 7.3 MMT but will issue a new report tomorrow. Statistics Canada predicts the 2015/16 oat crop will be 3.3 MMT, up nearly 14 percent from 2014/15 but 10 KMT below USDA’s September estimate. (Dow Jones)

Ukraine: UkAgroConsult says that a government decision to reduce corn exports by 21 percent will increase the demand for corn from other suppliers, and encourage the use of other grains such as wheat for animal feed. (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: China is on holiday this week and things are fairly quiet. Global ocean freight markets continue to struggle. Vessel owners are desperately hoping for a turnaround that does not appear to be imminent. Freight markets are definitely showing a carry, or contango situation, with deferred positions trading at a premium to today’s values. Actually this is just a situation of vessel owners not being willing to sell forward positions at today’s prices. However, they will end up having to accept what the market will pay when next month arrives and becomes the present. Buyers, of course, are not seeing any reason to pay up and seem very content to just wait and see what happens.

You will notice that grain vessel lineups at the U.S. Gulf are starting to build as the fall harvest progresses. PNW vessel lineups, however, have dropped back while the number of sorghum vessels loading in the Texas Gulf has declined substantially from previous weeks. The drop in rail car values in the secondary rail car market is a strong indicator that farmers are holding a lot of their production and not marketing very much from the combine.

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 Vietnam.

Vietnam Shipments 1
Vietnam Shipments 2
International Freight Rates for Feed Grains

10. Interest Rates

Interest Rates