1. Chicago Board of Trade Market News
Outlook: Traders had been lamenting the lack of volatility on which to make profits, but that changed this week as a flood of fresh capital poured into the market. The fresh speculative money was the story of the week as contracts were pushed higher. By Wednesday, the July contract was trading above its 20- and 40-day moving averages. There were some fundamentals underlying the shift, including adverse weather in South America (dryness in central Brazil; wetness in Argentina) and renewed demand from China, but it was also driven by sheer money flow. That put the market into a position for a correction.
Farmers sold heavily into the rally, both old and new crops. Soybean prices pushed far enough higher that many farmers began talking about ignoring what they’d said to USDA’s surveyors about their planting intentions and to instead plant more soybeans this year.
Nonetheless, U.S. corn planting progress was at 4 percent this past week, exceeding expectations and the forecast is that a lot of corn will get planted over the next 10 to 14 days. Technology enables American corn farmers to plant nearly 40 percent of their crop in a single week.
USDA’s April WASDE report provided no dramatic changes to the picture. U.S. corn stocks were raised less than one percent above the trade’s expectation, with a similar small change made to world surplus stocks. Corn for ethanol grinding this marketing year was raised by 25 million bushels, offset by a 50-million-bushel decline in the projected feed/residual use of corn.
U.S. weekly corn export sales were slightly above expectations for the current crop at 1.135 MMT, and in the middle of trade estimates for new crop at 111,000 MT.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: Heavy precipitation is expected in some of the driest parts of the Plains during the next 5 days (April 14-18, 2016). Generally, 3 to locally over 6 inches is forecast from the Texas Panhandle northward through western sections of Oklahoma, Kansas, and Nebraska as well as eastern Colorado. Forecast totals decrease markedly outside of this area, but amounts approaching or exceeding an inch are expected for much of the Plains from southern Texas northward through the central Dakotas. Moderate to locally heavy precipitation is also anticipated for southeastern Georgia and northeastern Florida, but only light precipitation, if any, is anticipated in the remaining areas of dryness and drought across the contiguous 48 states.
Over the ensuing 5 days (April 19-23, 2016), the odds favor wetter than normal weather from the southern half of the Plains eastward across the Gulf Coast States. In contrast, enhanced chances for subnormal precipitation exist for the areas of dryness and drought in the central Appalachians, Northeast, northern Plains, Rockies, Intermountain West, and Far West.
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 1,135,800 MT for 2015/2016 were up 20 percent from the previous week and 21 percent from the prior 4-week average. Increases were reported for Japan (396,700 MT, including 57,500 MT switched from South Korea, 55,000 MT switched from unknown destinations, and decreases of 2,800 MT), South Korea (240,800 MT, including 54,500 MT switched from unknown destinations and decreases of 7,200 MT), Mexico (161,500 MT, including 30,000 MT switched from unknown destinations and decreases of 14,800 MT), unknown destinations (136,400 MT), and Colombia (53,000 MT). For 2016/2017, net sales of 111,400 MT were reported for Japan (55,600 MT), Mexico (50,500 MT), El Salvador (4,500 MT), and Nicaragua (800 MT). Exports of 1,008,400 MT were down 11 percent from the previous week and 3 percent from the prior 4-week average. The primary destinations were Mexico (357,400 MT), Japan (214,400 MT), South Korea (168,900 MT), Taiwan (144,200 MT), and Colombia (69,400 MT).
Optional Origin Sales: For 2015/2016, new optional origin sales totaling 58,000 MT were reported for unknown destinations. Sales totaling 116,000 MT were exercised to export from the United States with a destination of Japan and South Korea. Sales totaling 35,000 MT were exercised to export from other than the United States. The current outstanding balance totals 305,000 MT, all unknown destinations.
Barley: There were no sales reported for 2015/2016 during the week. For 2016/2017, net sales of 2,000 MT were reported for Japan. Exports of 200 MT were reported to South Korea.
Sorghum: Net sales of 56,800 MT for 2015/2016 reported for Turkey (45,000 MT) and Mexico (24,100 MT), were partially offset by reductions for China (12,300 MT). Exports of 128,300 MT were down 10 percent from the previous week and 23 percent from prior 4-week average. The destinations were China (125,800 MT), Mexico (2,400 MT), and South Korea (100 MT).
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS shipments in February to China were down 3.83 percent from January and the price is sliding along with volume. Meanwhile, U.S. hay exports to China hit a record in February (83,844 MT) and prices are rising. Traders report ample interest in DDGS in other Asian markets based on lower prices. Moreover, since DDGS pricing is a result of many factors including ethanol grind, corn prices and demand, some expect a correction back upwards. This is reinforced by increased demand in both the U.S. and Mexico as hog rations have shifted to maximum DDGS inclusion rates.
This week’s market survey of DDGS prices in 16 markets reinforces the aforementioned qualitative input from the trade. Indeed, the average of all markets shows a slight rise in prices, mostly due to larger increases in Lethbridge, Alberta; Laredo, Texas; and the Pacific Northwest offsetting smaller declines in Asian markets. The rally this week in the corn market no doubt has had some impact. The dynamics moving forward create uncertainty, particularly weather in South America.
Ethanol Comments: The Energy Information Administration (EIA) raised the estimated stocks of ethanol by 100,000 barrels to 22.3 million. The agency calculated a 38,000 barrel-per-day reduction in ethanol production down to 938,000 barrels-per-day.
The margin between the corn price and the value of ethanol and coproducts took a significant jump upwards in all four market basket states. (see below).
- Illinois differential is $1.60 per bushel, in comparison to $1.34 the prior week and $2.32 a year ago.
- Iowa differential is $1.53 per bushel, in comparison to $1.30 the prior week and $1.99 a year ago.
- Nebraska differential is $1.71 per bushel, in comparison to $1.50 the prior week and $1.89 a year ago.
- South Dakota differential is $1.90 per bushel, in comparison to $1.53 the prior week and $2.19 a year ago.
7. Country News
Brazil: The Agriculture Ministry said it will ask to suspend a 10 percent tariff on imports of corn from non-Mercosur origins such as the United States due to prices hovering at record levels amid tight supplies. (Reuters)
China: Corn prices continued their slide with the government’s steady release of corn stocks, dropping another $1.50/MT down to an average of $276.50/MT. Meanwhile, Cargill’s Gert-Jan van den Akker said that it is "fifty-fifty" whether China would export its surplus of corn or turn it into ethanol. (Reuters) BMI says that China’s corn production will shift to a huge deficit in the coming years, going from a 5.2 MMT surplus in 2015 to a 6.4 MMT deficit by 2020.
France: The agriculture ministry (FranceAgriMer) reduced its estimate of 2015/16 ending stocks for barley by 31 percent to 1.1 MMT, and cut its estimate of surplus corn stocks by 7.6 percent down to 2.4 MMT. (Reuters)
South Africa: The corn crop is already down 40 percent from last year and now hitting the critical flowering stage. Hopes of importing 1.5 MMT of white corn has turned gloomy due to lack of supply and prices now at $350/MT. (WPI)
Ukraine: Corn planting has begun and area is expected to be 0.5-1.0 million hectares greater than last year due to the abandonment of wheat plantings last fall in a drought. By contrast, wheat and sunflower plantings will reduce corn area in Romania and Bulgaria by 3 percent. (WPI)
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: The Baltic indices continued to rally this week, albeit at a slower rate of increase than last week. But, once again the physical market did not move by the same degree of change, so the physical ocean freight market is lagging behind the Baltic index movement. This is no surprise and certainly not unusual. We did, however, see a slight uptick in physical rates and that is reflected in the freight matrix chart below. Over the past month daily hire rates for Dry-Bulk Panamax vessels have doubled as they moved up from $2,400/day to just over $5,000/day today. Without question the recent improvement in daily hire rates has been helpful to vessel owners, but it has not taken them out of the financial woods yet. We will have to see if this rally can be sustained, or improved, and see how many vessel owners take advantage of the rates before they potentially drop again.
The charts below represent year-to-date 2016 versus January-December 2015 annual totals for container shipments to Japan.