Market Perspectives June 16, 2016

1. Chicago Board of Trade Market News

Week in Review

Outlook: USDA’s June WASDE report was slightly bullish for corn as it reduced ending supplies for both the old crop (-95 million bushels) and new crop (-145 million bushels). Despite the better than previously expected corn exports, 2016/17 ending stocks will be ample (2 billion bushels/50 MMT), assuming production is not hurt.

A record long rally in the soybean market has the trade expecting USDA’s 30 June planted acreage report to show fewer corn acres (approximately 1 million less) and more planted to soybeans. Weather is the main story between now and the 30 June quarterly stocks and planted acreage reports. Current weather conditions are very good; the forecast not so much. The models are having trouble with consistency but expectations are that it will be much dryer and warmer in July and August, which poses a threat. The corn market is already up nearly 20 percent over 1 March and may see more weather risk premiums being added.

April trade data shows that China has returned to the market. U.S. corn exports to China were down from March but at 65,098 MT, it was the second highest volume for the month of April since 2011, surpassed only by the 74,943 MT in April 2012. U.S. sorghum exports to China that month hit 559,663 MT, a 12.5 percent improvement over the previous month, and the FOB port of departure value of $200.77/MT was 22.8 percent higher. Sorghum appears headed toward a solid year in export volume. Meanwhile, U.S. hay exports to China hit their second highest volume for the month since 2010 and are headed for a record year.

However, competition in the export market is about to increase as Argentine farmers have completed their soybean harvest and have now shifted all of their equipment over to corn, which has begun to arrive at ports with greater volume.

2. CBOT Corn Futures

July Corn Futures

CBOT Corn Futures Graph

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

US Crop Planting Progress
US Crop Condition

U.S. Drought Monitor Weather Forecast: In the short term (through June 21), temperatures as much as 6 degrees F cooler than normal are forecasted to occupy much of the Northwest, while much of the interior of the country will continue to bake in 5-10 degrees F above normal heat. Precipitation totals for the 5-day period ending on June 20 are forecasted to exceed 2 inches in southern Alabama and northern Florida as well as parts of the Mid-Atlantic. Based on the Climate Prediction Center’s 6-10 day outlooks (June 20-24), the greatest probability of warmer than normal temperatures will occur in the Desert Southwest and extending into the Great Basin and Southern Rockies. Odds are in favor of near normal temperatures for the Southeast Coast and Northern High Plains and Great Lakes area. Below normal precipitation is most probable for much of the Northwest and a narrow swath of area stretching from the Southern Plains into the Tennessee Valley. Odds are in favor for above normal precipitation to occur in the coastal areas of the Gulf Coast states and Florida as well as in the Great Lakes area and parts of 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

US Export Sales and Exports
US Export Inspections
USDA Grain Inspections for Export

Corn: Net sales of 909,700 MT for 2015/2016 were down 39 percent from the previous week and 36 percent from the prior 4-week average. Increases were reported for Japan (256,700 MT, including 105,800 MT switched from unknown destinations and decreases of 2,700 MT), South Korea (123,200 MT, including 120,000 MT switched from unknown destinations and decreases of 3,500 MT), Colombia (92,900 MT), Morocco (89,700 MT, including 22,700 MT switched from unknown destinations), Chile (89,200 MT, including 85,000 MT switched from unknown destinations), Algeria (76,900 MT, including 30,000 MT switched from unknown destinations and decreases of 700 MT), and Tunisia (63,000 MT, including 60,000 MT switched from unknown destinations). Reductions were reported for unknown destinations (218,200 MT), New Zealand (26,700 MT), Saudi Arabia (5,000 MT), and Panama (1,800 MT). For 2016/2017, net sales of 178,700 MT were reported for unknown destinations (42,700 MT), Mexico (40,000 MT), Japan (30,500 MT), and Panama (21,500 MT). Exports of 1,507,900 MT--a marketing-year high--were up 27 percent from the previous week and 42 percent from the prior 4-week average. The primary destinations were Japan (215,600 MT), Mexico (195,600 MT), South Korea (190,300 MT), Egypt (160,500 MT), Chile (89,200 MT), Peru (79,700 MT), and Taiwan (76,900 MT).

Optional Origin Sales: For 2015/2016, the current optional origin outstanding sales balance is 394,800 MT, all unknown destinations.

Export Adjustments: Accumulated exports for corn to Japan were adjusted down 58,656 MT for week ending June 2nd.

Barley: Net sales of 700 MT for 2016/2017 were reported for Vietnam (600 MT) and Japan (100 MT). Exports of 900 MT were reported to Japan (700 MT) and South Korea (200 MT).

Sorghum: Net sales of 50,100 MT for 2015/2016 resulted as increases for China (48,400 MT) and Japan (7,400 MT, including 7,100 MT switched from unknown destinations), were partially offset by reductions for unknown destinations (5,600 MT). Exports of 220,900 MT were up noticeably from the previous week and from prior 4-week average. The destinations were China (213,200 MT), Japan (7,400 MT), and Mexico (200 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: The soybean meal rally plus a hot, dry forecast for the U.S. Midwest continue to push upward pressure in the DDGS market. Ordinarily prices would be headed lower in summer but at times it has hit parity with corn and could be at a peak. However, some buyers are anxiously buying ahead of what some fear will now be a possible weather spike in the market. Meanwhile, and despite hurdles, U.S. DDGS exports to China achieved a month over month increase in April. A total of 125,587 MT were shipped to China, up 3 percent with highly competitive average pricing at $194.20/MT FOB.

The nearby market for DDGS in the Gulf has been very tight as barges favor the speed and ease of loading soybeans. Containers rates to Southeast Asia are up an average of $5 for July and August from last week, while rates to China and Japan showed larger increases.

Ethanol Comments: Daily U.S. ethanol production rose an average 8,000 barrels and hit a more seasonal level of 1.013 million barrels. Meanwhile, stock levels rose one million barrels (4.7 percent) to 21.2 million barrels.

The margin between the corn price and the value of ethanol and coproducts was variable this past week in the four key markets tracked (see below). 

  • Illinois differential is $1.82 per bushel, in comparison to $1.75 the prior week and $2.03 a year ago.
  • Iowa differential is $1.90 per bushel, in comparison to $1.82 the prior week and $1.91 a year ago.
  • Nebraska differential is $1.60 per bushel, in comparison to $1.64 the prior week and $1.64 a year ago.
  • South Dakota differential is $2.08 per bushel, in comparison to $2.22 the prior week and $2.06 a year ago.

7. Country News

India: Untimely rains have damaged 5-7 percent of the corn crop and prices are now high enough to prevent exports. If imports are required, CNF prices would be in the range of $235-240/MT, though there is no non-GMO supply available. (WPI)

Philippines: A joint project by Century Properties Inc., (CPI) and Precision Agriculture Management and Grains Development-Southeast Asia (PAMGD-SEA) has been initiated and will result in the annual production of 90,000 MT of genetically modified (GM) yellow corn. (BusinessWorld, Philippines)

Tanzania: In contrast to other parts of Sub-Saharan Africa, Tanzania has had very good maize production for three years in a row and is now exporting surplus stocks to neighboring countries. (WPI)

Ukraine: The feed market is inverted due to a lack of quality corn. Feed corn is currently more expensive than 3rd grade wheat and 4th grade wheat, but it usually trades around the same or at a $10/MT discount to feed wheat. (WPI)

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: It was a fairly quiet week in global ocean freight markets. The rally of the past week seems to have fizzled out and the market is re-grouping at slightly lower rates.

I believe the biggest issue facing the market now is whether or not vessel owners will heed the advice given at the annual Posidonia conference and not invest in more new builds. There is always the itch to order new vessels and expand once the market feels it has bottomed out and may be on the road to improved conditions. But to build more ships would be a killer for this struggling market and industry.

We are just ten days away from the opening of the new expanded Panama Canal. Please keep in mind that the Old locks will still be in operation and many ships will continue to transit through them for reasons of size and toll fees.

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 Vessel Pricing
US-Asia Market Spreads

The charts below represent year-to-date 2016 versus January-December 2015 annual totals for container shipments to Indonesia.

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

10. Interest Rates

Interest Rates