1. Chicago Board of Trade Market News
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Outlook: Despite record supplies, the corn market is clearly demand-driven right now. Exports have been more than robust and with the U.S. livestock sector expanding, the opportunity for increased feed demand is not lost on the market. Accordingly, the March CBOT futures contract reached a seven-month high this week while the December contract closed above $4.00 on Wednesday. Moreover, Brazilian corn prices have gained over $20/MT since January, despite threats of the country’s looming corn crop. The production forecasts for Brazil and Argentina point to a 28 percent total gain in corn production this spring, but markets are still moving higher. U.S. FOB Gulf corn is now priced under Brazil, pointing to the oddity of the demand situation. Of course, once the Brazilian harvest starts, the relationship will likely flip in accordance with traditional, seasonal price pressure. For now, though, U.S. exporters are enjoying an extended competitive advantage.
U.S. export sales were again robust this week, totaling 42 million bushels with 11.2 million bushels sold from the 2017/18 crop. Exports increased 5 million bushels over last week, reaching 49.3 million bushels; the highest weekly export figure since December 1, 2016. This week’s export activity puts YTD U.S. corn exports at 868.2 million bushels, up 67 percent from last marketing year. The USDA released Thursday their Baseline Trade Projections and pegged U.S. corn exports growing from 49.5 MMT in 2017/18 to 51.4 MMT by the 2020/21 crop year and 55.2 by 2026/27.
Last week’s WASDE report created some interesting price action across the grains complex at the CBOT. With a more bearish soybean report, traders were unwinding long soybeans/short corn or wheat positions, giving a lift to corn and wheat prices. Additionally, fund managers have been active buyers this week, adding to their long positions. The world seems reluctant to be short corn with export demand so strong and the possibility for much higher feed demand.
From a technical perspective, the uptrend in March corn futures is strengthening and this week’s trading has all been conducted above the 10, 20, and 40-day moving averages. Support has been formed at $3.71 ¾ and again near the 20-day and 40-day moving averages. Bulls are now shooting for a target price of $3.87 ½, the July 14 high. For now, it looks like the momentum is towards higher prices following the established trendline.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: The NWS WPC 7-Day Quantitative Precipitation Forecast (QPF) calls for much more heavy precipitation to impact the west, from Washington all the way to southern California, with an area in northwestern Washington forecast to receive as much as 10.8 inches of precipitation. Overall wide swaths are expected to receive well over two inches of rainfall. Rainfall may also impact southern Texas. Moving eastward, much of the southeast is forecast to see a quarter to a little over an inch of rain over the seven-day period. Once again, central and northern New England may see heavy moisture during the week, with the heaviest amounts projected over northern New Hampshire. The CPC 6-10 day outlooks call for a high probability of above-normal temperatures across the eastern two-thirds of the United States, and below-normal temperatures forecast to prevail in the west. Below-normal precipitation is forecast for a swath in the southwest covering Arizona, New Mexico, and central to western Texas while above-normal precipitation is expected most everywhere else in the contiguous U.S. Northern Alaska is also expected to receive above average precipitation and below-average temperatures during the period, while the southern tier is forecast to be warmer than average.
Follow this link to view current U.S. and international weather patterns and future outlook: Weather and Crop Bulletin.
4. U.S. Export Statistics
Corn: Net sales of 783,500 MT for 2016/2017 were down 19 percent from the previous week and 35 percent from the prior 4-week average. Increases were for Japan (708,800 MT, including 90,800 MT switched from unknown destinations and decreases of 4,500 MT), Peru (83,600 MT, including 108,000 switched from unknown destinations and decreases of 1,600 MT), Mexico (69,200 MT), Morocco (69,000 MT, including 65,000 MT switched from unknown destinations), and Chile (43,600 MT, including 45,000 MT switched from Peru and decreases of 1,400 MT). Reductions were reported for unknown destinations (381,200 MT), Venezuela (18,000 MT), and Honduras (3,500 MT). For 2017/2018, net sales of 285,200 MT were reported for Japan (229,000 MT), Mexico (30,000 MT), and Costa Rica (26,200 MT). Exports of 1,251,700 MT were up 11 percent from the previous week and 32 percent from the prior 4-week average. The primary destinations were Japan (382,200 MT), Mexico (233,700 MT), Peru (154,600 MT), South Korea (72,500 MT), and Morocco (69,000 MT).
Optional Origin Sales: For 2016/2017, the current optional origin outstanding balance of 760,000 MT is for unknown destinations (224,000 MT) and South Korea (536,000 MT).
Barley: There were no sales or exports reported during the week.
Sorghum: Net sales of 134,900 MT for 2016/2017 were up noticeably from the previous week and from the prior 4-week average. Increases were for China (174,500 MT, including 113,000 MT switched from unknown destinations), Japan (13,000 MT, including 3,000 MT switched from unknown destinations and decreases of 100 MT), the Republic of South Africa (9,500 MT, switched from unknown destinations), and Mexico (7,900 MT, including decreases of 4,000 MT). Reductions were reported for unknown destinations (70,000 MT). Exports of 153,000 MT were up noticeably from the previous week and up 40 percent from the prior 4-week average. The destinations were China (121,600 MT), Japan (18,000 MT), the Republic of South Africa (9,500 MT), and Mexico (3,900 MT).
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS prices have continued their rebound this week as rising soybean meal and FOB corn prices have led the market higher. On Tuesday, the USDA reported the national average DDGS price FOB ethanol plants reached $103/ton, the highest price this year. FOB Plant DDGS prices remain at 77 percent of corn futures and 30 percent of soybean meal futures, slightly higher than last week’s levels but still historically low. On a per protein unit basis, DDGS were priced at $4.14/protein unit this week, a $3.17 discount to soybean meal.
Export and international prices followed the same pattern, with FOB Gulf prices gaining $2/ton this week. The past two week’s large corn export volumes put upward pressure on FOB corn prices and left DDGS exporters limiting increases in their offers to move product. FOB DDGS prices were priced at 90 percent of FOB corn prices this week, equal with the week prior. On the international front, prices were sharply higher this week. Containers destined for Southeast Asia were up $6/ton for February shipment, on average, while shipments to Japan gained $8/ton. Prices for April shipment are averaging $3/ton higher than February shipment, indicating possible higher demand or tightened supplies to come. Given the apparent international demand for corn and soybean meal, it seems DDGS have additional upward price potential going forward.
Researchers at North Dakota State University are testing the feasibility of using wet distillers’ grains and condensed distillers solubles as fertilizer for crops. The research focuses on whether these products are a viable source of phosphorus for corn and spring wheat. Their initial research suggests corn and wheat yields were greater for fields treated with wet distillers’ grains or condensed distillers’ solubles than triple superphosphate.
Ethanol Comments: Weekly ethanol production fell by five million gallons this week (down 1.4 percent) as ethanol stocks continued to build. Over 425,000 barrels were added to ethanol stocks, following the seasonal pattern typical for this time of year. Weekly stocks in 2017 are tracking nearly equal to those of 2016 but margins have already proven more resilient this year than last.
Production margins were higher across all four reference markets this week, gaining between $0.15-0.47 per bushel with Nebraska producer margins gaining the most. The average margin across the U.S. was $1.71 this week, up $0.29/bushel from the week prior and up $0.31 from last year. Looking forward, building ethanol stocks and higher corn prices will pressure margins again. Production will likely fall steadily heading into late spring when seasonal gasoline demand will help work through the building ethanol stocks.
- Illinois differential is $1.58 per bushel, in comparison to $1.28 the prior week and $1.36 a year ago.
- Iowa differential is $1.47 per bushel, in comparison to $1.23 the prior week and $1.26 a year ago.
- Nebraska differential is $1.82 per bushel, in comparison to $1.35 the prior week and $1.48 a year ago.
- South Dakota differential is $1.96 per bushel, in comparison to $1.81 the prior week and $1.50 a year ago.
On the political front, U.S. Senator Joe Donnelly (D-Indiana) voted against the nomination of Scott Pruitt for the EPA’s top spot, citing Pruitt’s record of action against ethanol. Pruitt faces opposition from several democrats regarding his nomination but has broader support from Republicans.
7. Country News
Bolivia: Authorities are fumigating crops to stop a locust swarm that has destroyed 1,000 hectares of corn and sorghum thus far. The battle may take a while due to the challenge of finding all of the eggs and larvae. The country suffered a drought last year and growers have asked the government to approve genetically modified seeds to help overcome farming risks. (Reuters)
China: Beijing’s State Administration of Grain advised four northern provinces to provide subsidies to aid in the disappearance of surplus corn but traders says it will have little impact. Reasons given for its limited impact include: 1) details are limited; 2) most feed millers are located in the south; 3) the reserve funds being used are very limited; 4) only a limited number of companies are eligible due to the size floor being imposed; and 5) the limited time the subsidies are available – by end of April. (Platts)
European Union: Strategie Grains raised its forecast for the amount of corn and barley that will be produced in the EU this year. (Reuters)
Japan: Heavy storms in the U.S. Pacific Northwest have delayed corn shipments to Japan. To help with a domestic shortage, MAFF approved the use of corn from emergency stockpiles to help feedmakers. (Reuters)
Korea: Nonghyup Feed Inc. (NOFI) purchased 210 KMT of optional origin corn but rejected all offers on a tender for 65 KMT of corn that closed on February 16. (Reuters)
Libya: The state grain buying agency issued a tender for grain that includes 75 KMT of yellow corn and 75 KMT of feed barley. The tender deadline is Sunday, February 19 with delivery by the end of May. (Reuters)
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: Ocean freight markets did not move much this week. For or the most part, we seem to be in a sideways market.
The big news was, and is, about the very difficult logistical situation with rail deliveries and vessel loading out of the U.S. PNW. Just when you think everything is going smoothly, Mother Nature throws a curve ball at you. Heavy winter rains and snow have caused rail track damage resulting in the re-routing of trains and a substantial slowdown in grain rail deliveries to West Coast ports. There are as many as 60 vessels waiting to load in the PNW and loading delays are running up to 20-30 days. Most elevators are still working, albeit at a slow pace; some have declared Force Majeure and/or NAEGA II clause 20 extensions on their sales contracts. If you are a grain buyer off the PNW you should examine your contract very closely.
The extreme logistical conditions on the U.S. West Coast have resulted in a lack of new offers of grains (corn, soybeans, wheat) until the situation is cleared up. It is therefore impossible, or just outright irrelevant, at the moment to determine an accurate grain market spread for February or March between the U.S. Gulf and PNW. There have been market rumors of China selling and shipping 25-50,000 MT of corn to Japan, and South Korea shipping 40-50,000 MT of corn to Taiwan to stave off their shortage. Additional container shipments have tried to assist in the international supply effort.
An estimated five cargoes of corn are being shifted from the PNW to the U.S. Gulf. This is obviously an ever-evolving situation and we will have to see how it continues to unfold. Winter is not over yet.
The charts below represent January-December 2016 annual totals versus January-December 2015 annual totals for container shipments to Thailand.
10. Interest Rates