1. Chicago Board of Trade Market News
Outlook: Despite putting in new contract lows on Friday corn markets traded a tight range this week and broke from recent volatility. The markets appear to be consolidating, waiting for more information about the 2016 crop, with immediate weather concerns alleviated. The oppressive Midwest heat did not reduce crop condition ratings and 76 percent of the corn crop is rated as good or excellent. The resilience of the corn crop encouraged noncommercial funds to end their weather-market-anticipating long positions. The latest CFTC data showed a small short position in corn for the funds while commercial traders reduced short positions and became cash market buyers.
The trade is turning its focus to the August WASDE. Many expect the USDA to increase the corn yield given how well the crop tolerated the recent hot weather. The August WASDE will feature the first yield and production projections based on surveys and test plot data which are considered more reliable than the current trendline projections. Some yield models call for a national average yield of 171-172 bushels per acre which would tie or narrowly exceed the record yield of 2015. Given the inconsistency of weather thus far and the forecast for hotter and drier weather into August, yields of this magnitude are far from certain.
Thursday’s export inspections for corn fell again from the previous week, reaching 1.306 MMT. Export sales hit 36.0 million bushels last week, putting total old-crop sales at 1.917 billion bushels, slightly ahead of USDA’s July demand projections. However, old-crop sales are still lower than needed to meet USDA’s 2 percent projected annual demand increase. Analysts are viewing the export report as neutral-to-bearish.
December corn futures put in new contract lows last Friday, trading to $3.33 ¼ before closing a penny higher. The trading activity formed a key reversal chart pattern which often indicates a reversal in market direction. Trading Monday through Thursday found significant support near $3.37, though upward price moves have been limited. December futures remain under the bearish trendline established with the June 17 high, though highs on July 28 briefly broke the trendline before closing lower. The U.S. dollar broke downward on Thursday which should encourage U.S. corn exports. The market remains in a bearish trend with support for the December contract near $3.33. Basis levels through the Midwest are strengthening ($0.29 under September) but remain historically low. Farmers, having endured large cash price losses, are hardly eager sellers. Farmer selling will likely need to increase before futures can make a significant move to the downside. Sideways trading is to be expected in the near-term.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: During the next few days, an active weather pattern will feature the interaction between a disturbance in the Southeast and cold fronts crossing the Plains and Midwest. As a result, 5-day rainfall totals could reach 2 to 4 inches or more from the Mississippi Delta into the Mid-Atlantic States. Surrounding areas, including the northern and central Plains and the Midwest, could see 1- to 2-inch totals in a few spots. In the West, showers will be heaviest across Arizona and New Mexico, with most other areas remaining hot and dry. Elsewhere, lingering heat will be mostly confined to the lower Southeast, although hot weather will build eastward and return to the High Plains during the weekend.
The NWS 6- to 10-day outlook for August 2-6 calls for the likelihood of above-normal temperatures across the eastern half of the U.S., while cooler-than-normal conditions can be expected in parts of the Northwest and Southwest. Meanwhile, odds will be tilted toward above-normal rainfall in much of the Southeast, Southwest, and the upper Great Lakes region, while drier-than-normal weather should occur in the Northeast, Northwest, and south-central U.S.
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 438,800 MT for 2015/2016 were up 27 percent from the previous week, but down 5 percent from the prior 4-week average. Increases were reported for Japan (96,200 MT, including 86,700 MT switched from unknown destinations and decreases of 400 MT), South Korea (75,900 MT), Mexico (73,300 MT), Algeria (61,500 MT, including 15,000 MT switched from unknown destinations), Saudi Arabia (52,000 MT, including 45,000 MT switched unknown destinations), and Bangladesh (49,900 MT). Reductions were reported for unknown destinations (210,500 MT), the Dominican Republic (23,400 MT), Spain (20,000 MT), and Israel (2,700 MT). For 2016/2017, net sales of 476,500 MT were reported primarily for unknown destinations (181,800 MT), Peru (140,000 MT), and Mexico (67,900 MT). Exports of 1,379,800 MT were up 11 percent from the previous week and 5 percent from the prior 4-week average. The primary destinations were Mexico (272,600 MT), South Korea (272,200 MT), Japan (231,000 MT), Saudi Arabia (122,000 MT), Colombia (76,200 MT), and Taiwan (72,100 MT).
Optional Origin Sales: For 2015/2016, new optional origin sales totaling 58,000 MT were reported for unknown destinations. The current outstanding balance is 452,800 MT, all unknown destinations. For 2016/2017, new sales totaling 65,000 MT were reported for Taiwan. The current outstanding balance is 65,000 MT, all Taiwan.
Barley: Net sales of 400 MT for 2016/2017 were reported for Japan. Exports of 200 MT – a marketing-year-low – were reported to Taiwan.
Sorghum: Net sales of 71,600 MT for 2015/2016 resulted as increases for China (118,000 MT, including 113,000 MT switched from unknown destinations and decreases of 2,500 MT), Mexico (11,100 MT), and Indonesia (500 MT), were partially offset by reductions for unknown destinations (58,000 MT). For 2016/2017, net sales of 12,200 MT were reported for Mexico. Exports of 171,700 MT were up noticeably from the previous week and from the prior 4-week average. The destinations were China (171,100 MT), Mexico (600 MT), and South Korea (100 MT).
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: This week’s DDGS market has been active with buyers looking for offers. Strong interest from buyers in Southeast Asia has been noted, especially for product to be delivered in October and November. Prices for 40-foot containers to China for August delivery moved $5/container higher while containers to Japan rose $8/container. Despite the likely large corn production in the U.S. this fall, DDGS prices for September delivery are down very modestly ($6/container on average). Active buyer interest appears to be buoying the market for the near-term at least.
Ethanol Comments: International interest is developing in ethanol on two fronts this week. Mexico is showing interesting in importing U.S. sorghum to produce its own ethanol while Asian markets are keen to import ethanol.
Dropping concurrently this week were ethanol production and inventories in the U.S. Ethanol production fell from 1.029 million barrels last week to 998,000 this week, which is still a historically strong pace. This summer’s low gasoline prices boosted demand, causing ethanol stocks to fall from 21.2 to 20.4 million barrels, adding bullish sentiment to the market.
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 $2.04 per bushel, in comparison to $2.16 the prior week and $1.61 a year ago.
- Iowa differential is $1.93 per bushel, in comparison to $2.27 the prior week and $1.46 a year ago.
- Nebraska differential is $1.57 per bushel, in comparison to $1.94 the prior week and $1.19 a year ago.
- South Dakota differential is $2.01 per bushel, in comparison to $2.34 the prior week and $1.54 a year ago.
7. Country News
Brazil: Ethanol production in Brazil should fall in the coming three years if the world’s sugar deficits continue. The FG/AGRO consultancy noted recently that Brazil’s center-south sugar cane producing region may produce 27.2 billion liters of ethanol in 2016/17, down from 28.2 billion in the prior year. The fall in ethanol output will come despite increases in sugar cane production. Sugar cane production is set to reach 36.8 million tons this year, up from 31.2 in the prior year. Sugar cane will be transitioned from use in ethanol plants to sugar mills due to the global sweetener supply deficits. Current projections call for a global sugar deficit of 4-8 million tons for the next two years. (Reuters)
Russia: The latest production estimates from USDA FAS officials in Moscow increased grain production by 7 MMT to 107.7 MMT for the major crops. Russia’s corn production is estimated at 13.5 MMT while barley production is set to reach 17.5 MMT. Forecasts call for 4.1 MMT of corn and 3.8 MMT of barley to be exported from the 2016 crop. (USDA FAS)
South Africa: South African farmers have shifted acres away from wheat and into corn. The latest data from the South African Crop Estimates Committee pegged the 2016 corn crop at 7.26 MMT, driven partly by the third-smallest wheat planted area on record. South Africa’s corn production was revised upward by 0.1 MMT from last month’s estimate. The projected harvest for 2016 would still be 27 percent lower than 2015, due the El Nino-induced drought in the African nation. A private source projected South Africa will likely need to import 3.8 MMT of corn this year, a third of which is expected to be white corn – the staple variety for food consumption in the country. (Bloomberg)
Zimbabwe: A $500 million program has been announced to increase the nation’s corn production. The program is an effort to help domestic farmers meet the nation’s growing corn demand. The program will intentionally expand planted area and expand irrigation to boost production to 2 MMT per year. In 2014/15, Zimbabwean farmers harvested 724,000 tons of corn, far less than the domestic consumption of 1.8 million. (Bloomberg)
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: “What goes up must come down,” especially in a shipping market that still has an over-balance of vessels verses cargo. As I mentioned last week, the Baltic Index rally of the past month has been mostly technical in nature with too many players getting too optimistic with their wishful thinking. This week’s reality check has brought things back closer to earth.
Average daily earnings for Capsize vessels is now $6,059/day, while daily hire rates for Panamax vessels has declined to $6,276/day and look to be going towards $6,000/day. I hope vessel owners grabbed on to the better rates when they were available. Shipping industry financial statements are still looking ugly.
No record yet of any bigger grain vessels using the new expanded Panama Canal locks.
The charts below represent year-to-date 2016 versus January-December 2015 annual totals for container shipments to Vietnam.