1. Chicago Board of Trade Market News
Outlook: Until Thursday’s start at a correction, big short positions by funds had completely reversed with heavy volumes taking corn out of the trading range it had occupied since the last U.S. harvest. Fingers pointed all week to drought and political upheaval in Brazil coupled with floods in Argentina, but fundamentalists think the reaction is over-wrought considering the supply/demand situation, especially with the excellent U.S. planting weather. Until final trading on Thursday, Chicago futures saw offers 40 cents/bushel or higher than just three weeks ago, and settlement on Wednesday beat the $3.91 high set back in December. The unconventional market situation has even prompted some conspiracy theories. Still, the rise in corn prices has been modest relative to the increases for wheat and soybeans. Many farmers are selling into this bull rush, others are not. Some are gambling that La Niña will make the U.S. Corn Belt less ideal later this season.
Noncommercial funds have been reversing their large short positions, though as of last week they still were net short in corn. The CFTC Commitment of Traders report on Friday night will be closely analyzed. The upside is that developments in South America, including 20 straight days of rain in Argentina and incessant dry heat during pollination in Brazil make U.S. corn the cheapest in the world, with U.S. weekly corn export sales hitting solid numbers at 1,202,800 MT for old crop and new crop at 181,100 MT – even as the July contract nears $4/bushel. The downside is that it is being chased hard by a world with an abundance of cheap wheat for feeding.
U.S. corn planting (13 percent as of April 19) is advancing faster than the five-year average (8 percent), as one would expect with good weather and large investments in equipment during the bull market years. Final U.S. corn acres this season may be less than forecast due to the draw of even higher soybean prices.
The market is overbought but money is chasing momentum, which makes it vulnerable to the correction that may have started today.
Friday is the last trading day for CBOT May options.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: During April 21-25, 2016, moderate precipitation totals of 0.5 to 2.0 inches with locally higher amounts are forecast for northern California, much of the Sierra Nevada, the northern tier of the Rockies and Plains, central and eastern Texas, and the central Appalachians. A few tenths of an inch at best are expected in other affected areas across the contiguous 48 states. Temperatures should average a few degrees above normal across much of the Intermountain West, Rockies, and Plains.
The odds favor above-normal precipitation across most of the contiguous 48 states during April 26-30, 2016. There are enhanced chances for subnormal precipitation in the D0 areas in southeastern Georgia and northeastern Florida, and no tilt of the odds towards either wetness or dryness in central South Carolina and in the Big Bend region of Texas and adjacent New Mexico. Enhanced chances for warmer than normal conditions exist from the southern half of the Plains eastward to the central Appalachians and the Southeast Coast, but cooler than normal weather is favored in most of the Far West, the northern Plains, and the Northeast.
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 1,202,800 MT for 2015/2016 were up 6 percent from the previous week and 31 percent from the prior 4-week average. Increases were reported for Japan (337,200 MT, including 61,100 MT switched from unknown destinations and decreases of 6,900 MT), Mexico (196,300 MT), Saudi Arabia (115,600 MT, including 45,000 MT switched from unknown destinations), unknown destinations (109,100 MT), Colombia (85,500 MT, including 60,500 MT switched from unknown destinations and decreases of 8,900 MT), and South Korea (65,200 MT). Reductions were reported for the Dominican Republic (21,200 MT). For 2016/2017, net sales of 123,100 MT were reported for Mexico (90,000 MT), unknown destinations (35,000 MT), Costa Rica (33,400 MT), Panama (19,000 MT), and El Salvador (2,000 MT). Reductions were reported for Japan (56,300 MT). Exports of 1,283,500 MT--a marketing-year-high--were up 27 percent from the previous week and 20 percent from the prior 4-week average. The primary destinations were Japan (398,200 MT), Colombia (313,900 MT), Mexico (279,900 MT), Peru (60,700 MT), Guatemala (47,500 MT), and Saudi Arabia (45,600 MT).
Optional Origin Sales: For 2015/2016, new optional origin sales totaling 60,000 MT were reported for unknown destinations. The current outstanding balance totals 365,000 MT, all unknown destinations.
Barley: There were no sales reported for 2015/2016 during the week. Exports of 100 MT--a marketing-year-low--were reported to South Korea.
Sorghum: Net sales of 30,400 MT for 2015/2016 resulted as increases for China (61,600 MT, including 55,000 MT switched from unknown destinations), Mexico (10,100 MT), and Pakistan (3,700 MT), were partially offset by reductions for Turkey (45,000 MT). Exports of 192,100 MT were up 50 percent from the previous week and 20 percent from prior 4-week average. The destinations were China (117,000 MT), Pakistan (63,700 MT), Mexico (11,300 MT), and Indonesia (100 MT).
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: All DDGS markets moved up in price this past week, likely pulled by higher corn and soymeal pricing. Prices had dropped below the value of corn at the Gulf, but that was not sustainable. DDGS priced less than corn compels compounders to boost DDGS to maximum inclusion rates. For the first time in many weeks not a single position was in decline. The overall average increase was $17/container, but Jakarta for May delivery was plus-$28, and Asia deliveries overall were higher as they caught up with FOB Gulf pricing that began to feel the tighter market first.
There is even more potential in the market but there are also hurdles. India needs more plant proteins like DDGS for its livestock sector but the government has yet to liberalize its GM import policy. As a result, feed ingredients next door in Bangladesh are substantially cheaper.
Ethanol Comments: The Energy Information Administration (EIA) reduced the estimated stocks of ethanol to 22.05 million barrels (-1.2 percent) even as production increased by 1,000 barrels per day to 939,000 barrels per day.
The margin between the corn price and the value of ethanol and coproducts continued its climb upward in key markets (see below) with Nebraska coming close to matching the level of a year ago.
- Illinois differential is $1.65 per bushel, in comparison to $1.60 the prior week and $2.38 a year ago.
- Iowa differential is $1.72 per bushel, in comparison to $1.53 the prior week and $2.00 a year ago.
- Nebraska differential is $1.85 per bushel, in comparison to $1.71 the prior week and $1.89 a year ago.
- South Dakota differential is $1.94 per bushel, in comparison to $1.90 the prior week and $2.19 a year ago.
7. Country News
Brazil: The government eliminated the import tax (10 percent) for up to six months on a maximum of one million tons of corn. A short safrinha corn crop could encourage the planting of more first crop corn in September rather than soybeans. (Bloomberg and Reuters)
Canada: 2016 oat seeded area will be 2.972 million acres of oats, down by 365,000 acres from last year; pea and lentil area will expand. Also projected is an increase in corn plantings by 6.2 percent to 3.477 million acres from 3.275 million acres last year. (Stats Canada)
European Union: Brussels may impose duties on corn as import prices have fallen below the trigger level of €157/MT (155 percent of intervention). (Reuters)
Pakistan: The government has reversed an earlier decision to allow the sale of GM corn seeds that are herbicide tolerant and insect resistant. The decision had encountered strong criticism. (WPI)
South Africa: Drought prompted South Africa to buy white corn from the U.S. for the first time in 12 years. In the current marketing year, which ends April 30th, South Africa has imported over 70,000 tons of white maize from Mexico and Zambia. (South Africa Grain Information Service; Bloomberg)
Zambia: The National Bio-Safety Authority has given the Shoprite supermarket chain authority to import food stuffs containing GMOs. (Daily Mail)
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: Dry-Bulk markets have changed/improved. I have to believe that the market has set a bottom and that the lows for the year have been established and are now behind us. Global Dry-Bulk markets hit bottom around February 1, 2016 and dragged anchor for most of February and March. In late March and early April things turned around a bit and provided vessel owners with a bounce in daily hire values. Since February 1:
- The Baltic Dry-Bulk Panamax Atlantic index has improved by 5,177 points (just about doubled);
- The Panamax index in the Pacific has jumped 3,018 points or 152 percent.
The only remaining question then becomes where do things go from here? Granted, we have seen considerable consolidation in the shipping industry, some vessel layups, slow steaming plus a lot of vessel sales and scrapping. But the world fleet remains in oversupply and the fundamental picture is not yet bullish. So, vessel owners should certainly take advantage of this rally and not get overconfident or adventurous. With thoughts of U.S. corn and HRW wheat exports to Brazil I’ve been asked to estimate the freight cost of a Handymax vessel from the U.S. Gulf to Northern Brazil; my estimate would be close to $15.50-$16.00/MT.
The charts below represent year-to-date 2016 versus January-December 2015 annual totals for container shipments to Korea.