Market Perspectives March 2, 2017

1. Chicago Board of Trade Market News

Week in Review

Outlook: This past week, bullish news came from USDA’s weekly export sales report which estimated 58.9 million bushels of corn were exported last week. The figure came with a modestly disappointing sales figure of 28 million bushels, 0.8 of which were from the 2017/18 crop. Typically, export sales start to slump during the spring and steadily fall off into the summer. Last year, however, tight stocks in Brazil left U.S. exports robust through much of the spring and summer. This year is more likely to follow the traditional pattern, given the generally good condition of Brazil’s crop and the country’s expected production. So far, YTD exports are up 68 percent this year and bookings (exports plus unshipped sales) are up 57 percent YTD. 

From a technical perspective, May corn remains in its long, shallow uptrend and shows few signs of reversing course. The 100-day moving average has proven to be a strong support point since early January and major support is noted there, at $3.66. Resistance lies at $3.87, the February 16 daily high, and strong fundamental news will be required to lift the market above this point. A sentiment of weakness is prevalent in the cash market with interior basis levels widening and cash prices retreating modestly. The March futures contract received 118 deliveries yesterday, illustrating the weak cash situation. Looking forward, the May contract likely has a few days of upward momentum left in its system. So far this year, May corn has responded well to slow stochastic indicators, and Monday’s indication of oversold conditions gave way to Tuesday’s rally. Look for the market to trade higher for the next few days before bulls run out of news and commercial selling kicks in.

2. CBOT Corn Futures

CBOT May Corn Futures

CBOT Corn Futures Graph

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

U.S. Drought Monitor Weather Forecast: In the two days since the Tuesday morning cutoff time of this week’s USDM, a frontal system dropped 1-2 inches of rain, and locally more, across parts of the Ohio Valley D0 area, with half an inch or more falling across parts of the Southeast. For March 2-9, 3-5 inches of precipitation, and locally more, is forecast for north coastal California to western Washington; 1-2 inches over parts of the Northern Rockies; and a tenth of an inch or more across the rest of the Northwest into the Great Basin. Precipitation is expected across parts of the Southern Plains to Southeast, Northern Plains to Great Lakes, and along the Eastern Seaboard, with amounts ranging from a few tenths of an inch across most of these regions, to an inch or two across southern Texas, the Gulf Coast, and northern Great Lakes. Most of the Southwest into the Central Plains should be dry. Above-normal temperatures are expected for most of the CONUS, with the greatest departures in the Central Plains, while below-normal temperatures may linger in the Pacific Northwest. Odds favor the temperature anomaly pattern persisting through March 10-15. March 10-15 projections favor a continuation of the precipitation anomaly pattern with below-normal precipitation from the Southwest to Central Plains and along the Gulf of Mexico coast to Mid-Atlantic States, with above-normal precipitation favored for the rest of the CONUS. 

Follow this link to view current U.S. and international weather patterns and 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 692,400 MT for 2016/2017 were down 7 percent from the previous week and 24 percent from the prior 4-week average. Increases were for Mexico (260,200 MT, including decreases of 7,400 MT), Japan (132,900 MT, including 81,400 MT switched from unknown destinations), South Korea (119,600 MT, including 55,000 MT switched from unknown destinations and decreases of 3,200 MT), Saudi Arabia (115,500 MT, including 116,000 MT switched from unknown destinations and decreases of 800 MT), and Colombia (101,800 MT, including 78,000 MT switched from unknown destinations and decreases of 15,900 MT). Reductions were reported for unknown destinations (378,800 MT) and Guatemala (3,600 MT). For 2017/2018, net sales of 20,600 MT were reported for Japan (13,000 MT) and Mexico (7,600 MT). Exports of 1,497,800 MT--a marketing-year high--were up 24 percent from the previous week and 38 percent from the prior 4-week average. The primary destinations were Mexico (376,300 MT), Japan (254,700 MT), Colombia (144,000 MT), South Korea (119,900 MT), and Saudi Arabia (115,500 MT). 

Optional Origin Sales: For 2016/2017, new optional origin sales totaling 63,000 MT were reported for South Korea. Cancellations totaling 136,000 MT were reported for South Korea. The current optional origin outstanding balance of 756,000 MT is for unknown destinations (293,000 MT) and South Korea (463,000 MT). 

Barley: Net sales of 600 MT for 2016/2017 were reported for Taiwan (300 MT), Japan (300 MT), and South Korea (100 MT). For 2017/2018, net sales of 4,400 MT were reported for Japan. Exports of 700 MT were reported to Japan (500 MT) and Taiwan (200 MT). 

Sorghum: Net sales of 16,200 MT for 2016/2017 were down 81 percent from the previous week and 78 percent from the prior 4-week average. Increases were for China (51,700 MT, including decreases of 1,300 MT), the Republic of South Africa (49,500 MT, including 42,500 MT switched from unknown destinations), Japan (10,000 MT), and Taiwan (500 MT). Reductions were reported for unknown destinations (95,500 MT). Exports of 102,800 MT were down 42 percent from the previous week and 30 percent from the prior 4-week average. The destinations were China (51,700 MT), the Republic of South Africa (49,500 MT), Indonesia (900 MT), and Mexico (600 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: DDGS prices were mixed this week, with the sharply higher corn and weakening soybean meal markets offering conflicting influences for DDGS. Prices reported by the USDA (FOB ethanol plants) were $1/short ton higher this week, while USGC’s reported FOB NOLA prices were lower. DDGS (FOB plant) stand at 31 percent of corn futures value, the same as last week, while FOB NOLA DDGS are at 40 percent of FOB corn, down from the week prior. Cooler Midwest weather across the plains states this week is likely increasing feed demand for DDGS while a higher dollar and Brazil’s Carnival celebration may be tempering international demand. 

International prices have been competitive this week as merchandisers seek to move inventory. Prices for 40-foot containers to Asia were down $5/ton on average this week, though prices to Japan climbed $3/ton. On a per-protein unit basis, DDGS are still highly competitive against soybean meal. FOB plant DDGS have a $2.87 advantage against soybean meal this week while, on the export front, FOB NOLA DDGS have a $1.94 cost advantage. 

Ethanol Comments: Weekly ethanol production was steady this week as ethanol stocks continued to grow and ethanol margins improved only modestly. Ethanol production last week was 1.034 million barrels per day, equal to the week prior, while ethanol stocks reached 23.09 million barrels; approaching its seasonal peak. The spring driving season tends to quickly draw down ethanol stocks and this year’s mild winter and apparent early spring will likely hasten the stock reduction. From a demand standpoint, these factors should create upward pressure on ethanol prices, buoy production margins, and allow producers to continue their impressive output numbers. 

Ethanol production margins were essentially steady across the four reference markets this week, with 4-7 cent gains in Illinois, Nebraska, and South Dakota, and a penny loss in Iowa. Across the U.S., margins were $0.40 per bushel higher this week but are still below year-ago levels by $0.12. The spread between futures-implied ethanol production margins and Iowa cash margins narrowed somewhat this week but remains abnormally strong compared to the past two years. The strength in the futures-implied margin is likely signaling better times ahead for producers, which will further encourage production. 

  • Illinois differential is $1.45 per bushel, in comparison to $1.41 the prior week and $1.58 a year ago.
  • Iowa differential is $1.34 per bushel, in comparison to $1.35 the prior week and $1.47 a year ago.
  • Nebraska differential is $1.62 per bushel, in comparison to $1.58 the prior week and $1.82 a year ago.
  • South Dakota differential is $1.95 per bushel, in comparison to $1.88 the prior week and $1.96 a year ago.

7. Country News

Africa: The Mozambican Agricultural Research Institute has planted its first GM maize test crop under the Water Efficient Maize for Africa program. (Crop Protection News) The National Bio-safety Authority had given approval for testing the GM corn in Kenya but then the National Environmental Management Authority halted the project, saying the ban on GMO imports also applies to controlled growing tests. Kenya is importing corn from Mexico and Ukraine due to a drought-stunted domestic crop. (Bloomberg) 

China: Heilongjiang province has joined Jilin and Liaoning provinces in offering subsidies to feed millers for using corn. Heilongjiang will offer 300 yuan ($43.67) per ton subsidies while Jilin has promised 200 yuan/MT and Liaoning is paying just 100 yuan. These major corn producing provinces also paid subsidies to feed millers in October of last year. (Reuters) Jilin Province has also sought a delay in sales of corn from state stockpiles in an effort to boost demand for supplies directly from farmers. (Bloomberg)

Japan: Eleven feed makers tapped into 97 percent of the 340,000 tons of corn approved by MAFF for use in light of delayed shipments from the U.S. The corn being utilized represents 39 percent of the 850 KMT of corn (equivalent to one month’s domestic demand) that 17 feed makers are required to stockpile in case of emergency. (Reuters) 

Philippines: Ethanol imports in 2016 reached a record level at 440 million liters. That is a 21 percent increase from 2015 when ethanol imports were also up from the year before. The lack of domestic production capability is driving imports. (AgraNet) 

Ukraine: Spring planting will start early in Ukraine with an estimated 2.59 million hectares to be sown to barley, down from 3.1 million hectares in 2016. (Bloomberg)

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 another up week in global ocean freight markets. Those who believe it is turnaround time seem to have the upper hand at the moment. It will be interesting to see just how far they can really push things. 

Looking back, however, it is quite impressive how much the markets have moved/recovered. One year ago (February 29, 2016) the Baltic Panamax index stood at a low of 282. Today it closed at 1,041. That is an improvement of 759 points or 369 percent (of course it came up from a very low level). Physical rates are obviously not up that much, but this is proof that the markets have certainly bottomed and turned the corner. It is also a good indication of just how enthusiastic and anxious the paper players are. Physical rates have risen about $12.50 (U.S. Gulf to China) and about $6.50/MT (PNW to China) over the past year. 

The grain vessel lineup in the PNW dropped this week to about 61 ships waiting, a small improvement. BNSF rail deliveries of grains also continues to improve with deliveries becoming more regular. It looks like the worst is behind us. Now, it will just be a case of having to sort out all the contract disputes.

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 January-December 2016 annual totals versus January-December 2015 annual totals for container shipments to Hong Kong.

Container Shipments 1
Container Shipments 2
Freight Chart 1
Freight Chart 2
Freight Chart 3

10. Interest Rates

Interest Rates