1. Chicago Board of Trade Market News
Outlook: Trading in corn was volatile this week with markets gyrating according to changing weather forecasts. The U.S. corn crop remains in good condition with 76 percent rated as good or excellent. The good crop condition added to bearish sentiment later in the week as the crop appears able to withstand the current Midwest heat wave. Temperatures in the Corn Belt are going be oppressive but good July rainfalls and soil moisture will help the crop endure the heat. Despite the heat, the trade is not ruling out the possibility of an above-trend line yield this fall. Some now believe that USDA may actually increase yields in its August estimate which would push ending stocks above the psychologically important 15 percent level. Statistically, however, USDA has cut yield estimates in the September WASDE report in five of the last ten years.
Friday’s export inspections for corn fell from the previous week but were at the top end of analysts’ range. Still, the report is viewed unimpressive and thus as bearish. Export inspections for the 2015/16 crop year total 1.486 billion bushels, down 3 percent from the prior year. More importantly, the year-to-date inspections are below USDA’s expected 2 percent increase in export demand. U.S. exports have been stymied partly due to inexpensive feed wheat on the global markets.
December corn put in new contract lows on Wednesday and Thursday, closing below support previously found at $3.46. Noncommercial traders have nearly fully liquidated their long position - which totaled over 250,000 contracts at one point – which has added to the selling pressure. The U.S. dollar gained modest momentum this week which further pressured corn markets. From a technical perspective, the market is oversold and in an established downtrend. Should the oncoming heat wave damage the crop more than is currently anticipated, resistance will likely be found at $3.63. Technically, there is little to stop the markets from putting in much lower lows. However, basis remains strong through the U.S. ($0.31 under September) and farmers are becoming less willing sellers below $3.45. Without significant weather events or other shocks, the market will likely grind lower towards $3.30.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: The next 3-7 days will bring above normal temperatures for much of the CONUS with the warmest anomalies forecasted for the Midwest and along the East Coast. Negative temperature anomalies will be confined to the Northwest. The High Plains, parts of New England, the Southeast, and Florida have the best chances of greater than normal precipitation.
The CPC 6-10 day outlook calls for the greatest chances of above normal temperatures in California and the Great Basin, as well as the East Coast. The probability is high that below normal precipitation will occur in the Northwest, especially in Washington and Oregon, and the Midwest, while odds are in favor of above normal precipitation in the Southeast and East Coast.
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 345,100 MT for 2015/2016 were down 48 percent from the previous week and 42 percent from the prior 4-week average. Increases were reported for Taiwan (146,700 MT, including 133,000 MT switched from unknown destinations), Mexico (132,800 MT, including 32,000 MT switched from unknown destinations and decreases of 12,700 MT), South Korea (127,200 MT, including 63,000 MT switched from unknown destinations), Peru (50,600 MT, including 35,000 MT switched from unknown destinations), Chile (45,000 MT), and Algeria (43,900 MT, including 45,000 MT switched from unknown destinations and decreases of 1,100 MT). Reductions were reported for unknown destinations (342,900 MT) and Japan (128,400 MT). For 2016/2017, net sales of 506,300 MT were reported primarily for unknown destinations (287,000 MT), Japan (85,500 MT), and Mexico (83,200 MT). Exports of 1,240,900 MT were unchanged from the previous week, but down 5 percent from the prior 4-week average. The primary destinations were Japan (340,800 MT), Mexico (268,600 MT), Taiwan (145,100 MT), Algeria (88,900 MT), South Korea (66,500 MT), and Colombia (47,600 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 300 MT for 2016/2017 were reported for South Korea. Exports of 500 MT were reported to Vietnam (300 MT) and South Korea (200 MT).
Sorghum: Net sales of 53,500 MT for 2015/2016 were up 25 percent from the previous week, but down 39 percent from the prior 4-week average. Increases were reported for China (28,000 MT), Colombia (25,000 MT), and Indonesia (500 MT). Exports of 2,500 MT were down 98 percent from the previous week and 96 percent from the prior 4-week average. The destination was Mexico.
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: At the same time that ample grain supplies are pressuring markets, DDGS prices are having to take into account historically high put-through rates at the Gulf. Prices are expected to continue moving lower but that has not stifled near-term demand.
DDGS is still being viewed fully relative to its corn value in the feed ration. In fact, container values to Asian destinations were down very modestly (<$3/container) this past week. Uncertain will be the impact of a large crop coming in this fall relative to demand but, at this juncture, buyers are purportedly already bidding for fourth quarter purchases.
Ethanol Comments: Ethanol production this past week hit a record high of 1.029 million barrels per day, up 25,000 barrels from the prior week. Similarly, ethanol stocks grew by 26,000 barrels to 21.157 million barrels. However, gasoline usage recovered from the prior week’s fall and surpassed the usage observed at the beginning on July.
The margin between the corn price and the value of ethanol and coproducts was lower this past week in all of the four reference markets (see below), and the spread versus this time last year continues to widen.
- Illinois differential is $2.16 per bushel, in comparison to $2.40 the prior week and $1.53 a year ago.
- Iowa differential is $2.27 per bushel, in comparison to $2.37 the prior week and $1.56 a year ago.
- Nebraska differential is $1.94 per bushel, in comparison to $1.98 the prior week and $1.20 a year ago.
- South Dakota differential is $2.34 per bushel, in comparison to $2.42 the prior week and $1.55 a year ago.
7. Country News
Argentina: Export logistics slowed even further this week as two of the country’s largest trucking unions went on strike. Some ports have seen all incoming trucks come to a halt while others have seen a marked decrease in volumes. Rosario saw 125 trucks arrive from midnight to 7:00 AM on Wednesday, versus over 7,000 the prior week. (Various sources).
Poland: A recent USDA report pegged total ethanol production in Poland at 200,000 MT. Poland’s bioethanol and biodiesel industry both have excess capacity and further investment or production expansions are not anticipated. Poland’s National Incentive Target is 7.1 percent for this year and will expand to 20 percent renewables in all energy used by 2020. (USDA/FAS GAIN report)
Lithuania: Lithuanian ethanol production was estimated at 12,000 MT according to USDA/FAS, roughly half of the country’s 2011 production (23,000 MT). Production decreases came after a 2014 bankruptcy and subsequent closure of one Lithuanian ethanol plant. Lithuanian ethanol consumption is estimated at 11,000 MT, down 4,000 MT from the prior year. The USDA report notes that only a small proportion of Lithuania’s vehicles use ethanol due to the harsh winter conditions. (USDA/FAS GAIN report)
South Africa: Despite the drought in South Africa, one South African bank is noting little stress on the bank’s loan portfolio. South Africa experienced the least rainfall since record keeping started in 1904, severely damaging crops and livestock herds. (Bloomberg)
South Africa: Astral Foods, Ltd. notes that high deed costs are forcing it to consider permanent cuts in its poultry production. (Bloomberg).
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: Most of what I hear in the Panamax Dry-Bulk market is how the “technicals” have been bullish and supporting of the Baltic Index price rally. So, this past upward move appears to be largely technical in nature and not fully supported by the physical markets. It is also interesting to note that the recent rally in the Dry-Bulk markets was not, as is normally the case, led by the Capesize vessel market. That market has actually been soft over the last few weeks. It has been the smaller vessels (Panamax and Handymax types) that have been the market leaders.
The other topic of discussion in the global Dry-Bulk market is about how the Dry-Bulk fleet is depending more on the grains cargo sector for support. If this is truly the case, and Grains only represent 12-14 percent of Dry-Bulk demand, then this market is in a real pickle and will certainly suffer as the harvest season uptick comes and goes. However, the market rally appears to be losing strength and things are now readjusting.
The charts below represent year-to-date 2016 versus January-December 2015 annual totals for container shipments to Thailand.