Market Perspectives December 17, 2015

1. Chicago Board of Trade Market News

Week in Review

Outlook: USDA released its annual ten year outlook for major crops, an exercise it conducts merely to aid budgeting for farm programs, and it immediately gets overly interpreted by the market. It forecasts that the area planted to corn will fall to 88.0 million acres by 2025/26, while the yield continues to grow, resulting in ending supplies continuing at current levels. However, there are several private analysts that believe the area planted will expand as farmers try to cover their fixed costs, and instead it is yield that fails to measure up as they cut the variable cost side of their ledger with reduced fertilizer use.

Either way, futures market trading volume remains light, meaning any short covering that occurs will likely have an exaggerated impact. The Fed raised its interest rate to a quarter-point, and Argentina’s Mauricio Macri followed through on his commitment to eliminate the corn export tax and devalue the peso. However, that does not obviate the impact of any potential future adverse weather impact on corn production.

Rabobank says that China’s sorghum and feed barley imports may decline in coming years due to policy changes, but Saudi Arabia is set to become a better market for imported feed grains as it phases out fodder production over the next three years due to water limitations.

At this stage, the trade will be waiting for USDA’s January reports, including the release of the December 1 stocks report.

2. CBOT Corn Futures

March Corn Futures

CBOT Graph

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

U.S. Drought Monitor Weather Forecast: During December 17-21, storminess should continue across the Pacific Northwest, northern California, most of Idaho, and adjacent parts of surrounding states. Precipitation totals in most of the area should be moderate, ranging from about an inch to a few inches, but areas from the Cascades to the West Coast will likely get soaked again. More than a foot could fall on parts of coastal Oregon. Farther east, light to moderate precipitation, with isolated amounts of up to 1.5 inches, are expected across the areas of dryness and drought in the East. From the Appalachians to the Rockies and in the Southwest, existing dry areas shouldn’t expect much relief, with only a few tenths of an inch at best anticipated. Temperatures are forecast to average several degrees above normal from the Plains to the East Coast, and near normal in most other locations.

The odds favor wet weather across almost the entire contiguous 48 states during the ensuing 5 days (December 22-26), with the highest likelihoods covering areas from the Mississippi Valley to the Appalachians in the East, and the central and northern Rockies, northern and central Intermountain West, and Oregon in the West. Very mild weather is possible across the eastern half of the country.

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 579,400 MT for 2015/2016 were down 44 percent from the previous week and 47 percent from the prior 4-week average. Increases were reported for unknown destinations (172,100 MT), Colombia (131,500 MT, including 25,000 MT switched from unknown destinations and decreases of 3,200 MT), Japan (99,000 MT, including 3,600 MT switched from unknown destinations and decreases of 9,500 MT), South Korea (65,000 MT), Peru (35,600 MT), Mexico (32,200 MT), and Cuba (25,000 MT). Reductions were reported for Guatemala (7,000 MT) and the French West Indies (1,700 MT). Net sales of 98,200 MT for 2016/2017 were reported for Japan (97,200 MT) and Nicaragua (1,000 MT). Exports of 495,000 MT were up 2 percent from the previous week and 11 percent from the prior 4-week average. The primary destinations were Mexico (194,300 MT), Japan (105,500 MT), Colombia (96,600 MT), Peru (66,200 MT), Nicaragua (12,800 MT), and Taiwan (8,900 MT).

Optional Origin Sales: For 2015/2016, the current outstanding balance is 511,000 MT, all unknown destinations.

Export Adjustments: Accumulated exports to Japan were adjusted down 62,993 MT for the week ending December 3rd. This shipment was reported twice. 

Barley: There were no sales reported during the week. Exports of 400 MT were reported to Israel (300 MT) and South Korea (100 MT). 

Sorghum: Net sales of 168,500 MT for 2015/2016 were up 63 percent from the previous week, but down 11 percent from the prior 4-week average. Increases were reported for China (106,000 MT), unknown destinations (51,500 MT), and Mexico (11,000 MT). Exports of 58,900 MT were down 79 percent from the previous week and 74 percent from prior 4-week average. The destinations were China (58,600 MT) and Mexico (300 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: Healthy U.S. ethanol will keep supplies of DDGS available to foreign buyers. The trade is reporting steady inquiries, and generally steady pricing. Vietnam remains a keen buyer and while container sales to Asia took an overall average 15 percent price slide for January shipments, the average for February and March deliveries is down only 1 percent. Containers to South Korea buck the trend noted above, with prices increasing into February and March. FOB Lethbridge, Alberta prices are holding steadily up from the past weeks through March.

There is speculation that DDGS sales to China could actually increase in the short-term.

Ethanol Comments: U.S. ethanol production was at one million barrels per day, up 7 percent from last week’s average. Ethanol imports averaged 32,000 barrels per day, and ethanol stocks climbed by 2.5 percent to 20.3 million barrels. Note that the U.S. Congress ended a 40-year ban on crude oil exports, which should strengthen oil prices and that of other fuels.

Ethanol remains a popular public policy with Civatal reportedly building a new sugar-based plant in Mato Grosso, Brazil. In India, where sugar-based ethanol production has doubled over the past year, the government is set to approve all ethanol automobiles while banning luxury diesel vehicles in downtown New Dehli in order to improve air quality. 

For the week ending December 17, 2015 the differential between the price of corn and co-products for the four regions of the Corn Belt is as follows: 

  • Illinois differential is $1.53 per bushel, in comparison to $1.67 the prior week and $3.33 a year ago.
  • Iowa differential is $1.34 per bushel, in comparison to $1.43 the prior week and $3.02 a year ago.
  • Nebraska differential is $1.56 per bushel, in comparison to $1.61 the prior week and $3.11 a year ago.
  • South Dakota differential is $1.48 per bushel, in comparison to $1.50 the prior week and $3.11 a year ago.

 

7. Country News

India: India needs to import corn for its starch makers and feed millers, who are suffering losses, but the government must issue a new tariff rate quota (TRQ), which it has not done since April and has resulted in a de facto import ban. Unclear is how it will manage reasonably priced imports with its zero tolerance for any GMO content.

Indonesia: Djarot Kusumayakti, CEO of Indonesia’s state procurement agency Bulog, says corn imports will total 600 KMT in the first quarter of 2016. Corn imports had been halted in July 2015 when the government tried to boost self-sufficiency. Bulog will handle all of the country’s planned 2.4 MMT of corn imports in 2016 through a new business model that is being developed. (Jakarta Globe)

Jordan: To solve its problems with procurement, Amman has contracted with UAE based Al Dahra Company to take over the country’s purchasing of 400 KMT of barley.

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: Though the market remains weak and defensive, things did seem to bottom out this week. After making new lows on Monday the Baltic Panamax Index turned around and showed a little support for the balance of the week. I cannot call this market action a rally, but it does appear that we may have reached a level low enough that no one wants to sell beyond. If you look closely at the poor Capesize Iron ore market you will notice that there was a trade this week from Western Australia to China at $2.25/MT, before things stabilized at around $3.30/MT. It just can’t get lower than that!

My belief is that the market will probably bounce around at current levels until something substantial occurs to improve cargo demand – and that is not likely to happen for many months.

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 year-to-date 2015 versus January-December 2014 annual totals for container shipments to Thailand.

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

10. Interest Rates

Interest Rates