Market Perspectives April 20, 2017

1. Chicago Board of Trade Market News

Week in Review

Outlook: The May corn contract remains stuck in a choppy, sideways trading pattern. The Easter holiday dampened trading late last week, though a general lack of news didn’t help either. Trading has essentially been conducted on weather forecasts for Brazil and the U.S., with Brazil’s weather bringing bearish sentiment and American weather bullish. 

The Midwest is wet right now which is causing concerns about delayed planting. As of April 16, 6 percent of the U.S. corn crop was planted, half of last year’s pace and behind the 5-year average pace of 9 percent. Still, it’s a little early to be overly concerned about these figures, though greater delays may signal a switch from corn to soybeans. 

Looking toward the summer weather forecast for the U.S., NOAA is calling for a hotter and drier than normal summer for much of the Corn Belt. Currently, the Southeast U.S. is dry and whether this dryness will expand to the Delta or Corn Belt will be closely watched. Given corn’s preference for cooler growing seasons, a hotter summer or dryness in the Midwest could raise some concern about reaching trendline yields. Should the weather begin to show signs of heat and/or dryness, expect the market to quickly price in some weather risk premium. 

In Brazil, however, the weather has been hugely favorable to the corn crop which seems to grow bigger each day. The recent weather has been especially critical for the safrinha corn crop which is estimated at 61.6 MMT, 67 percent of Brazil’s total corn production. Current weather forecasts call for light rains across much of the core second-crop corn area (most of which is located in Mato Grosso) which will boost crop conditions – and yields. Though the market has not paid much attention to this fact, Brazilian farmers have only sold 49 percent of their soybean crop. If selling does not increase in the coming weeks, there is a strong probability much of the safrinha crop could be left sitting on the ground – or standing in the field. Such an event might actually work to reduce the size of Brazil’s crop, or at least the volume of high quality corn. 

The latest export data from the USDA were bullish corn. Net sales of old-crop corn were 29.8 million bushels, above the 3.6 needed in this week’s report to keep on pace with USDA’s projections. Similarly, weekly exports of 55.4 million bushels exceeded the 43.7 that were needed to meet USDA’s export forecast of 2.225 million bushels. YTD exports are up 55 percent from last year while YTD bookings (exports plus unshipped sales) are up 43 percent. 

From a technical standpoint, May corn is in a sideways range between $3.55 and $3.75. No one wants to buy or sell the breaks as many feel the market has been too bearish for too long, but everyone is selling rallies. Fund managers are leaning bearish on corn, though not overly so. Under these conditions, sideways trading will persist until new fundamental news knocks the market out of its range. Oscillating technical indicators (stochastics, MACD, and RSI) may perform well under these conditions.

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. Crop Planting Progress

U.S. Drought Monitor Weather Forecast: During the next 5 days, temperatures are forecasted to be near to below average for the Northwest, High Plains and South. Warmer than average temperatures are expected in the Mid-Atlantic, Southeast and Southwest. During the same period, precipitation is forecasted to be the heaviest (3-5 inches) in an area stretching from Oklahoma east through the Tennessee Valley. Much of the Midwest and Northeast is also expected to see about an inch of precipitation. The 6-10 day outlooks call for an increase in probability that above normal temperatures are expected in the Southwest and South stretching into the Midwest and below normal temperatures in the Northwest, Northeast and parts of the High Plains. The odds are in favor of wet conditions in the Northwest, Northern Rockies and High Plains while the West and East Coasts dry out. 

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 756,400 MT for 2016/2017 were up 3 percent from the previous week, but down 23 percent from the prior 4-week average. Increases were reported for Japan (339,300 MT, including 194,500 MT switched from unknown destinations and decreases of 29,100 MT), South Korea (198,700 MT), Peru (94,300 MT, including 86,000 MT switched from unknown destinations and decreases of 5,800 MT), Taiwan (75,200 MT, including decreases of 100 MT), and Nigeria (50,000 MT). Reductions were reported for unknown destinations (191,400 MT), the French West Indies (4,400 MT), and the Dominican Republic (1,700 MT). For 2017/2018, net sales of 91,800 MT were reported for Japan (71,500 MT) and Mexico (20,300 MT). Exports of 1,408,300 MT were up 31 percent from the previous week and 3 percent from the prior 4-week average. The primary destinations were Japan (503,900 MT), Mexico (425,700 MT), Peru (122,300 MT), Taiwan (90,400 MT), and the Dominican Republic (76,900 MT). 

Optional Origin Sales: For 2016/2017, options were exercised to export 68,000 MT to South Korea from the United States. Decreases of 40,000 MT were reported for unknown destinations. The current optional origin outstanding balance for 2016/2017 of 294,000 MT is for unknown destinations (163,000 MT) and South Korea (131,000 MT). The current optional origin outstanding balance for 2017/2018 of 58,000 MT is for unknown destinations. 

Barley: There were no sales or exports reported during the week. 

Sorghum: Net sales of 46,900 MT for 2016/2017 resulted as increases for China (100,700 MT, including 53,000 MT switched from unknown destinations and decreases of 2,800 MT), were partially offset by reductions for unknown destinations (53,000 MT), Japan (600 MT), and Mexico (200 MT). Exports of 136,000 MT were up 39 percent from the previous week and 40 percent from the prior 4-week average. The destinations were China (107,200 MT), Mexico (19,400 MT), and Japan (9,400 MT). 

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: Despite a second week of lower ethanol production, merchandisers are reporting ethanol plants have plenty of product to offer. Ample supplies are failing to spur much buying interest, however, though buyers are reportedly working the phones aggressively and checking prices with multiple sellers. Sellers are defending prices and are not moving much closer to bids. Accordingly, prices are steady FOB ethanol plants and CNF barge NOLA while FOB NOLA prices slipped modestly. 

DDGS prices FOB ethanol plants were $1/ton higher this week ($102/ton) while cash soybean meal prices rose $5/ton. On a per-protein unit basis, DDGS were priced at $4.10 and soybean meal at $6.22. The difference between the two moved to favor more heavily DDGS, falling to -$2.12 this week. 

FOB NOLA DDGS prices softened to remain competitive with lower corn prices. FOB DDGS were priced at $144/ton this week, down $2/ton from the prior week, which left DDGS priced at 90 percent of FOB corn values. Prices for DDGS delivered via rail to the PNW were steady while rail-delivered to California prices increased $6/ton this week, reaching $175. 

On the international front, buyers from Korea, Thailand, Taiwan, and the Philippines have been active this week. Prices were broadly stronger this week for 40-foot containers destined for Southeast Asia with most markets rising a few dollars per ton. Larger decreases in prices to Vietnam left the average weekly price change near zero, however. 

With sideways price action in corn and essentially steady soybean meal prices, buyers are seeing little reason to become aggressive on DDGS procurement. The big-supply, low-price environment in which most commodities find themselves is reducing incentives to procure supplies in advance. The market outlook is for generally steady prices with a slight upward lean as expanding livestock production and global protein needs support consumption.

7. Country News

Brazil: The government will offer 500 million reals ($159 million) in subsidies to help corn producers market their 2016/17 crop. Some traders have used the grants to subsidize the cost of moving the corn from production areas to export facilities. Meanwhile, the government agency CONAB will acquire up to 1 MMT of corn in Mato Grosso via an auction where it is offering 18.87 reals (USD$ 6.10) per 60-kg bag (approximately USD $2.60/bushel; $101.66/MT). (Reuters) 

China: The National Bureau of Statistics says that corn production area will be reduced by 4 percent in 2017. Overall output will fall by 5.5 percent to 219.6 MMT, the smallest crop since 2012. (Reuters) 

The Chinese government removed the cap on corn refining capacity and state-owned COFCO, which can currently process 6 MMT of corn per year, says it intends to expand capacity by 67 percent to 10 MMT by 2020. COFCO’s general manager, Tong Yi, says China’s overall corn processing capacity will expand by 40 percent from 50 MMT currently to 70 MMT next year. 

To further help the country cut through huge corn surpluses, Henan Tianguan Group believes the government may increase the fuel-ethanol production target. (Bloomberg; Reuters) 

Korea: On April 18, the country’s Major Feedmill Group (MFG) bought 60 KMT of corn out of 210 KMT tendered for optional origin delivery. Meanwhile, the Korean Feed Association issued a tender for 130 KMT of corn to be sourced optional origin. Final bids were due on that request by April 19. (Reuters) 

Turkey: A tender was issued for 118 KMT of corn for loading during April 25-May 7. The Turkish Grain Board wanted all bids delivered no later than 2 PM on April 19. (Reuters) 

Ukraine: Sharply colder air, snow and sleet may delay the planting of corn, according to UkrAgroConsult. The weather deterioration may mean that the country’s misses the government’s forecast of 4.507 million hectares planted to corn. (Reuters)

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: Global Dry-Bulk ocean freight markets had a good follow-through rally for the first three days of the week but started selling off on Thursday. This brought rates back very close to the levels of last week’s close. 

Freight traders were expecting continued robust demand but found that, as iron ore prices increased, demand backed off. Demand in the grain sector remained good, but did not record any pickup in cargo demand. There is trade talk of 61,000 MT of corn from Paraguay coming into the port of Wilmington, Delaware on the U.S. East Coast in May. This should not be very trade disruptive; however, it does say something about trade competitiveness and U.S. domestic rail rate structures. If you want to know something about farmer grain movement in April, just take a look at the U.S. interior rail and barge rates. Not sure how barge lines are staying afloat at these low rates. 

Container rates and logistics continue to struggle and bump around with the challenges related to consolidation within the shipping line industry.

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 YTD 2017 versus 2016 annual totals for container shipments to Malaysia. 

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

10. Interest Rates

Interest Rates