1. Chicago Board of Trade Market News
Outlook: Last Friday’s Commitment of Traders report surprised many by the sheer scale of the net short positions by funds. Coverage was then pursued sparking a small rally. Nonetheless, short positions remain large. Then the U.S. Federal Reserve expressed concerns about a softer than expected economy, tanking the dollar and sparking commodity markets. This bullish input pulled the equities market into the black for the first time in 2016 but it was not enough to hold up the price of agricultural commodities.
All of this may be small potatoes relative to the USDA reports on stocks and planting intentions at the end of this month. The latter report holds the most interest, particularly if it indicates a different story than the increase in corn acres expected by the trade. The May contract currently cannot break through the resistance at $3.70-$3.75; a bullish planting intentions report would break this barrier.
Notably, Brazil has exported a record amount of corn but now there are reports it may have to import some to meet domestic demands.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: During the next 5 days (March 17-21), a ridge will develop over the western U.S., bringing warmer-than-normal temperatures, and a trough over the east with colder-than-normal air masses. Up to 2 inches of precipitation may fall along the northern California to Washington coast, with a tenth of an inch to an inch further inland over the interior Northwest and central to northern Rockies. But most of the West to Great Plains will see little to no precipitation. Coastal lows will spread up to an inch to 2 inches from central Texas, along the Gulf of Mexico Coast, and up the Atlantic coast, and an inch to 2 inches may fall over the western Great Lakes. Precipitation is expected to be lighter towards the Ohio Valley with less than a quarter inch falling from the Ohio and Tennessee Valleys to the Mississippi Valley.
For days 6-10 (March 22-26), the odds favor below-normal precipitation in the Southwest to southern Plains of the CONUS, and along the Southeast coast, and above-normal precipitation across the northern tier states and along the Mississippi to Ohio Valleys. Above-normal temperatures are expected everywhere except the Pacific Northwest and southern Florida.
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 1,227,000 MT for 2015/2016 were up 5 percent from the previous week and 17 percent from the prior 4-week average. Increases were reported for Japan (437,300 MT, including 109,400 MT switched from unknown destinations and decreases of 69,900 MT), Mexico (283,900 MT), unknown destinations (191,300 MT), the Dominican Republic (66,400 MT), China (52,500 MT), and Colombia (43,300 MT). Reductions were reported for South Korea (900 MT). For 2016/2017, net sales of 61,400 MT were reported for Mexico (47,400 MT) and Honduras (14,000 MT). Exports of 873,900 MT were down 17 percent from the previous week, but up 4 percent from the prior 4-week average. The primary destinations were Mexico (285,100 MT), Japan (260,200 MT), Colombia (132,300 MT), South Korea (64,200 MT), Venezuela (30,000 MT), and Guatemala (25,100 MT).
Optional Origin Sales: For 2015/2016, new optional origin sales totaling 58,000 MT were reported for unknown destinations. Decreases totaling 58,000 MT were reported for unknown destinations. The current outstanding balance totals 340,000 MT, all unknown destinations.
Barley: There were no sales or exports reported during the week.
Sorghum: Net sales of 9,400 MT for 2015/2016 resulted as increases for China (63,700 MT, including 59,200 MT switched from unknown destinations and decreases of 3,500 MT), Japan (8,400 MT, including 8,100 MT switched from unknown destinations), Mexico (5,300 MT), and Indonesia (200 MT), were partially offset by reductions for unknown destinations (68,100 MT). Exports of 150,100 MT were up 40 percent from the previous week, but down 1 percent from prior 4-week average. The destinations were China (127,900 MT), Japan (18,400 MT), and Mexico (3,800 MT).
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Although U.S. exports of DDGS to China are down, that country continues to offer a price premium for both DDGS and sorghum imports over shipments going to other markets. Still, protein feed markets are pressured – the latest factor being large supplies of Canola meal coupled with a weak Canadian dollar, complicated further by China’s ban on imports under the pretense of blackleg fungal disease. The ban comes concurrent with China’s effort to deal with its own surplus of rapeseed meal supply.
USDA’s Agricultural Marketing Service (AMS) reports that DDGS prices FOB domestic plants traded mostly steady last week with some locations down $5.00/MT. In a similar vein, the trade reports that export prices for DDGS were flat to down slightly. There were no changes in prices for April/May shipment to China, the Philippines or Japan, and the maximum decline was -$4/container for shipment to Thailand. The average change was -$1/container.
The one positive offset is that freight remains very inexpensive, which helps the DDGS netbacks versus corn. There may be some supply tightening as plants go through the normal amount of expected downtime for spring maintenance in March and April.
Ethanol Comments: The industry has had its heaviest grind for ethanol since averaging 1.003 million barrels per day (BPD) during the week of January 8. Consequently, the Energy Information Administration (EIA) reports that U.S. weekly ethanol output was up 21,000 BPD to a total of 999,000 BPD. However, use is also up as the agency reports that weekly ethanol stocks declined by 454,000 barrels resulting in overall stocks of 22.85 million barrels. Higher overall fuel use and higher gasoline prices should improve margins.
Separately, the U.S. Environmental Protection Agency and the Commodity Futures Trading Commission announced that they would begin sharing information on the generation of renewable identification numbers (RINs) using non-public, proprietary business information in an effort to ensure the sanctity of the market.
The margin between the corn price and the value of ethanol and coproducts was up in Iowa, Nebraska and South Dakota, but fell in Illinois. (see below).
- Illinois differential is $1.30 per bushel, in comparison to $1.36 the prior week and $2.04 a year ago.
- Iowa differential is $1.22 per bushel, in comparison to $1.20 the prior week and $1.67 a year ago.
- Nebraska differential is $1.38 per bushel, in comparison to $1.37 the prior week and $1.57 a year ago.
- South Dakota differential is $1.44 per bushel, in comparison to $1.34 the prior week and $1.88 a year ago.
7. Country News
China: Corn prices are falling precipitously, down $12.30/MT to an average $288.10/MT last week as the government unloads surplus stocks and cornstarch inventories continue to climb. (WPI)
India: A tender to import 240,000 tons of corn was cancelled due to higher expected domestic production and, notably, “questions about the availability of non-genetically modified corn as demanded.” (Reuters)
Turkey: The government increased the local value added tax on imported DDGS and corn gluten feed from 8 percent to 18 percent in order to protect the domestic soybean/sunseed crushers.
Zimbabwe: The World Food Program is seeking $220 million to supply corn and other staples to Zimbabweans suffering from the drought. (Bloomberg)
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: In the world of ocean freight, what goes up must come back down. The basic fundamentals remain unchanged. It appears the market rally of the previous two weeks has come to an end and that things are cooling off again. The Capsize vessel market has not moved enough to notice over the past three weeks and past support in the Panamax sector seems to be wavering. It is only the smaller vessel segments (Supramax and Handymax) that are holding onto past gains. I’ve left rates unchanged for the week as we monitor how things track going into the weekend.
It looks like we exported some U.S. ethanol from Houston, TX to India at a freight rate of $85.00/MT. I don’t believe that U.S. west coast product would be competitive, but for the record that freight spread looks to be close to $10.00/MT.
The charts below represent year-to-date 2016 versus January-December 2015 annual totals for container shipments to Taiwan.