1. Chicago Board of Trade Market News
Outlook: After losing $1/bushel the previous week, the market absorbed a less bearish than expected WASDE report and a high pressure ridge starting next week that will impose above normal temps (+10-15 degrees to near 100F/37.7C) and have little moisture for the Midwest corn crop. The endurance of the ridge is the question? Will it last just a couple of weeks or will it endure well into August? Half of the crop is pollinated but a long heat wave will impact on the filling of the ears. This will impose a see-saw situation on the market as Brexit and the June 30 USDA reports bled out all of the weather premium that now must be put at least partially back into place.
The WASDE lowered the disappearance of corn for feed and ethanol uses, but more than offset that with an increase in expected exports. Even so, carryout levels remain large, 1.7 billion bushels in 2015/16 and over 2 billion bushels in 2016/17. The trend remains bearish with resistance to any movement above $3.68/bushel. Bears can try to push it below the current support level of $3.46/bushel but there is no indication that farmers are willing to sell at such a level.
Last week’s corn exports and outstanding export sales (668,055 MT and 1,242,125 MT, respectively) were considered neutral to bearish despite year-to-date levels being 31 percent above a year ago and 71 percent above the five-year average. This is because they are not at a pace to meet USDA’s forecast for the year. Moreover, Argentina is expected to have cleared up its logistical hurdles and be more export competitive in September.
CME increased the required level of margin by speculators and the July contract expires today.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: During the next 5 days (July 14-18), light to moderate precipitation (0.75-1.5 inches) is expected across much of the northern and central Plains, Midwest, Tennessee Valley, southern Appalachians, Carolinas, southern Louisiana and Florida, and the Northeast, with the largest totals (2-3.5 inches) in the south-central Plains, southern Appalachians, and North Carolina. Little or no rain is forecast for much of the Far West, Rockies, southern Plains, and coastal New England. Temperatures should average above normal in the Southwest and southern High Plains, Deep South, and in the Atlantic Coast States, with subnormal readings in the Northwest, northern Plains, and Midwest.
The NWS 6- to 10-day outlook for July 19-23 favors sub-median precipitation for much of the lower 48 States (West, northern Rockies, Plains, Midwest), except for odds tilted toward above-median rainfall in the Southwest, and small areas of the Pacific Northwest, southern Texas and Florida, and eastern Carolinas. The chances for above normal temperatures are high across much of the contiguous U.S., especially in the North Central States. Exceptions to this include the Pacific Northwest where subnormal readings are likely.
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 667,800 MT for 2015/2016 were up 81 percent from the previous week and 2 percent from the prior 4-week average. Increases were reported for Japan (231,400 MT, including 183,200 MT switched from unknown destinations and decreases of 62,800 MT), South Korea (190,000 MT, including 68,000 MT switched from unknown destinations and decreases of 1,500 MT), Peru (162,100 MT, including 85,000 MT switched from unknown destinations and decreases of 800 MT), Mexico (75,400 MT), Morocco (66,300 MT, including 2,000 MT switched from unknown destinations and decreases of 200 MT), Venezuela (63,700 MT), and Egypt (59,400 MT, including 54,000 MT switched from unknown destinations). Reductions were reported for unknown destinations (322,000 MT), the United Arab Emirates (2,000 MT), Costa Rica (1,500 MT), Ireland (500 MT), and Nicaragua (400 MT). For 2016/2017, net sales of 687,800 MT were reported primarily for Mexico (259,500 MT), Japan (198,000 MT), unknown destinations (178,100 MT), and Peru (30,000 MT). Exports of 1,242,600 MT were down 2 percent from the previous week and 9 percent from the prior 4-week average. The primary destinations were Japan (357,900 MT), Mexico (285,300 MT), South Korea (138,900 MT), Peru (88,200 MT), Morocco (64,500 MT), and Egypt (59,400 MT).
Optional Origin Sales: For 2015/2016, the current optional origin outstanding sales balance is 394,800 MT, all unknown destinations.
Barley: Net sales of 500 MT for 2016/2017 were reported for Taiwan. Exports of 1,200 MT--a marketing-year-high--were reported to Vietnam (1,000 MT) and South Korea (200 MT).
Sorghum: Net sales of 42,800 MT for 2015/2016 resulted as increases for China (86,300 MT, including 56,000 MT switched from unknown destinations), were partially offset by reductions for Colombia (25,000 MT), unknown destinations (17,500 MT), and Mexico (1,000 MT). For 2016/2017, net sales of 12,000 MT were reported for Mexico. Exports of 117,000 MT were up 83 percent from the previous week and 37 percent from the prior 4-week average. The destinations were China (115,500 MT) and Mexico (1,400 MT).
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Container shipments of DDGS to Asian markets continued to decline in price with an average $6/container decline to Southeast Asia and a reportedly large $22/container drop in price for sales to Japan. Overall, sales were modest this past week but buyers have become more comfortable making bids as they perceive the market to have settled into terms that are concurrently more certain and attractive. However, that certainty may not last as rates for containers FOB Gulf jumped by $10/container this past week and that will now likely reverberate into overseas markets. Moreover, the impending Midwest heat wave will start rebuilding the weather premium into the futures market, and this may eventually become reflected in DDGS prices.
Ethanol Comments: Ethanol production this past week increased by 20,000 barrels per day to an average of 1 million barrels per day; stocks were reduced by 426,000 barrels to 21.13 million barrels. However, gasoline usage took a decline that is unusual for this time of year.
The margin between the corn price and the value of ethanol and coproducts was higher this past week in three of the four reference markets (see below), and the spread versus this time last year continues to widen.
- Illinois differential is $2.40 per bushel, in comparison to $2.20 the prior week and $1.62 a year ago.
- Iowa differential is $2.37 per bushel, in comparison to $2.23 the prior week and $1.59 a year ago.
- Nebraska differential is $1.98 per bushel, in comparison to $1.99 the prior week and $1.28 a year ago.
- South Dakota differential is $2.42 per bushel, in comparison to $2.22 the prior week and $1.42 a year ago.
7. Country News
Argentina: Exporters and local authorities met on July 14, 2016 to discuss extending the expiration dates for export licenses. Exporters are arguing an extension is required because the rains have delayed harvest and more time is needed to execute the exports. (WPI)
Black Sea: The corn crop is developing well and is expected to be large, putting heavy pressure on the feed wheat market as August shipment values fall below $155/MT. (WPI)
China: Corn prices climbed this past week to an average $294.70/MT but corn starch prices fell -$8.20/MT to $23.90/MT on lower demand. Ethanol prices held steady. (WPI)
India: The government will raise the mandatory ethanol blend rate to 22.5 percent but the question is how that demand will be met. At present there is inadequate feed stock (sugar/molasses) and gasoline demand is growing steadily (+7 percent per year and higher). Separately, the government has approved duty free imports of 500 KMT of corn that are designed to check domestic prices and prevent hoarding. (WPI; Bloomberg)
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: I must admit that it is difficult for me to see the true justification for the rally in the Dry-Bulk freight markets. But the rally continued on this week, especially in the Baltic indices. Iron ore exports from Western Australia to China reached record levels over the past week, but the Capesize freight actually slipped back slightly as there are still too many vessels versus cargo.
It is the Panamax, Supramax and Handymax markets that are giving support to the market. Capesize vessel daily hire rates are $7,000/day for August. Panamax Dry-Bulk daily hire rates are up to $6,450 for Q4 but are just $5,800/day for 2017. Handymax vessels are getting close to $7,000/day for Q4 and out into 2017. All these hire rates are better than the $4,600-$5,500/day that was seen earlier this year, though still not as big a jump as is indicated by the rise in the Baltic Indices. As mentioned last week, the physical freight market has moved up a bit, but not at all to the degree reflected in the current Baltic Indices. I have heard that much of the buying activity on the Baltic may be due more to paper short covering than actual physical demand.
In closing, we will have to watch to see which of these markets adjusts first to come into better alignment.
The charts below represent year-to-date 2016 versus January-December 2015 annual totals for container shipments to the Philippines.