Market Perspectives April 27, 2017

1. Chicago Board of Trade Market News

Week in Review

Outlook: The corn market has been actively watching two diverging weather trends this week. South American weather remains nearly ideal for harvest and crop production while U.S. weather is cold and rainy. The former is (as it has been for months now) depressing prices from over-supply concerns. The latter, however, is rapidly advancing delayed-planting concerns and how a late planting will impact Upper Midwest yields.

Despite cold, wet weather across the central U.S., corn planting this week reached 17 percent of the intended area, only 1 percent behind last year. Still, with weather forecasts calling for heavy rains in the Midwest, snow in parts of Wisconsin, and cool Canadian weather, traders are expecting to see the difference between this year’s planting pace and the average widen over the coming week. However, U.S. farmers can make significant planting progress in a short period of time these days, thanks to an amazing array of technologies and equipment improvements. The planting may look like it will slow down soon, but this is far from implying with certainty a late-planted crop. 

Today’s Export Sales report from USDA showed another week of bullish sales and exports. Net sales for the week reached 39.3 million bushels, well above the 12.6 million needed to maintain pace with USDA’s forecast. Similarly, shipments of 54.1 million bushels were above the 42.8 million needed this week. U.S. and Brazilian corn seem to be in a continual battle over which origin is cheapest for June/July shipment. The latest quotes show FOB NOLA prices with a slim advantage over FOB Paranagua prices, which is critical to maintaining the current export pace. Whether U.S. prices can remain competitive against Brazilian-origin product when the South American winter corn crop comes to market remains to be seen, however. 

From a technical perspective, May corn is still in a minor downtrend from the February 28 daily high, though significant support has been uncovered near $3.54. Commercial traders are slowly migrating to the long side of the market and funds are actively covering shorts given the U.S. weather concerns. The sizable short position held by managed money traders is important only in that it may contribute to the velocity of an upward price move should these positions be unwound. As with nearly all major market moves, commercials will lead the way, followed closely by funds and speculative traders. The average U.S. corn basis is wider than normal right now, which suggests commercial-driven price increases are not imminent. Choppy trading is expected going forward. 

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: The focus for heavy rainfall will shift to the nation’s mid-section over the next 5 days. An area of low pressure and its attendant cold front will produce moderate to heavy showers and thunderstorms as it moves from the Mississippi Valley toward southern Canada and the Atlantic Seaboard, though rain from this system will largely bypass the East Coast States. In its wake, another storm system will develop over the south-central U.S. during the weekend and lift slowly northeastward, producing heavy rain from the central Gulf Coast into the central Great Lakes Region; moderate to heavy wet snow is likely in the colder air on the northwest side of the storm over central and southern portions of the Rockies and High Plains. Combined, these two storms are expected to produce a large swath of 1- to 3-inch precipitation totals from the central Plains to the Great Lakes and Mississippi Valley, with excessive rainfall (4-12 inches) possible from the northern Delta into the central Corn Belt. The NWS 6- to 10-day outlook for May 2-6 calls for above-normal precipitation across much of the nation east of the Mississippi as well as central and northern portions of the Rockies and High Plains. Conversely, drier-than-normal conditions are expected from Texas into the upper Midwest and from the Great Basin into the Northwest. Colder-than-normal conditions from the western slopes of the Appalachians to the High Plains will contrast with warmer-than-normal readings along the Atlantic Coast as well as California and the Southwest. 

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 987,900 MT for 2016/2017 were up 31 percent from the previous week and 18 percent from the prior 4-week average. Increases were reported for South Korea (291,900 MT), Japan (204,000 MT, including 68,900 MT switched from unknown destinations and decreases of 20,800 MT), Saudi Arabia (133,800 MT, including 125,000 MT switched from unknown destinations), Mexico (104,500 MT, including decreases of 2,900 MT), and Peru (77,200 MT, including 45,000 MT switched form unknown destinations). Reductions were reported for El Salvador (6,800 MT) and Morocco (100 MT). For 2017/2018, net sales of 11,100 MT were reported primarily for Japan (10,300 MT). Exports of 1,374,300 MT were down 2 percent from the previous week, but unchanged from the prior 4-week average. The primary destinations were Japan (364,800 MT), Mexico (275,400 MT), Peru (149,700 MT), Saudi Arabia (133,800 MT), and Taiwan (129,500 MT). 

Optional Origin Sales: For 2016/2017, options were exercised to export 68,000 MT to South Korea from the United States. The current optional origin outstanding balance for 2016/2017 of 226,000 MT is for unknown destinations (163,000 MT) and South Korea (63,000 MT). The current outstanding balance for 2017/2018 of 58,000 MT is for unknown destinations. 

Barley: No net sales were reported for the week. Exports of 300 MT were reported to Taiwan. 

Sorghum: Net sales of 63,100 MT for 2016/2017 were up 35 percent from the previous week, but down 6 percent from the prior 4-week average. Increases were reported for unknown destinations (53,000 MT), Mexico (7,200 MT), China (2,700 MT), and Japan (300 MT). Reductions were reported for Canada (100 MT). Exports of 27,300 MT were down 80 percent from the previous week and 79 percent from the prior 4-week average. The destinations were Japan (17,300 MT), Mexico (9,800 MT), and Taiwan (200 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: DDGS prices have trended sideways this week with little bullish or bearish news to influence them. The occurrence of plant closures for spring maintenance was supposed to have tightened supplies and supported prices, but that has yet to happen. Traders are reporting weak demand and steady pricing in Chicago and weaker prices in California. Prices for DDGS delivered via rail to the PNW had only enough room to advance $2/MT this week as PNW corn prices were steady. 

More pricing strength is being reported on the international front where Gulf FOB prices are $3-4/MT higher this week. Merchandisers are reporting inquiries from several international destinations but little follow-through trading so far. Buyers seem content to shop around for now. Currency fluctuations and foreign exchange rates have been active in recent weeks which is further slowing international demand. Prices for 40-foot containers to Southeast Asia were steady this week, averaging $175/MT. 

FOB DDGS prices are equal to 92 percent of Gulf FOB corn, up 2 percent from the prior week as FOB corn prices slipped this week. FOB Gulf soybean meal increased $10/MT this week which kept the DDGS/soybean meal price ratio at 42 percent. On a per-protein unit basis, FOB Gulf DDGS increased their cost advantage over soybean meal, with prices now $1.52 lower than soybean meal. Similarly, FOB ethanol plant DDGS maintained a $2.27 per-protein unit cost advantage over FOB plant soybean meal. 

In the long run, DDGS consumption has plenty of room to grow, driven by both economic and environmental factors. Recent research has highlighted the environmental benefits of feeding DDGS to livestock. Including DDGS in dairy cow rations was found to reduce methane production and reduce phosphorus excretion in swine and poultry manure. Both findings hint at significant environmental benefits, those of lowering greenhouse gas emissions and reducing phosphorous runoff from manure-fertilized fields. Accordingly, ethanol’s most prominent co-product has a place in livestock rations to help achieve production and environmental goals.

7. Country News

Brazil: Low gasoline prices are discouraging the use of ethanol and so the government is considering a new program called RenovaBio that would issue Certificates of Emissions Reductions (CERs). Fuel distributors would have to acquire a specified amount of CERs indicating ethanol usage, and they would be tradable on the market. (Reuters) 

Canada: Cold temperatures and snow still in the fields of western provinces are preventing farmers from harvesting crops left in the field last fall, including barley. This kind of weather has not been seen in 30 years, and farmers that ordinarily plant in May could be forced to wait until June. This will likely impact yields. (Reuters) 

China: Sinograin reported that there were no bidders for 8,890 tons of corn offered on April 21. China may start state corn sales in large volumes in May, where lower bidding prices are expected. (Bloomberg) 

Mexico: The Mexican Association of Sustainable Transportation has submitted a plan to the government that would raise the current ethanol blend requirement from 5.8 percent to 10 percent. The plan would utilize more crops like sorghum and hope to foster economic development. (Reuters) 

Ukraine: Grain exports in March were up 52 percent with maize shipments jumping to 3.1 MMT, the largest volume thus far in the 2016/17 marketing year. (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: Chartering activity slowed this week and motivated Baltic Index traders to either take some profits or reduce their positions in the third quarter 2017 markets. Consequently, things floated lower for the week. I believe the markets also must be mindful of the fact that, if everyone starts to get to excited about a market turnaround too soon, we will just fall back into the same self-defeating strategy of increasing the new vessel order book. We have already seen some signs of that starting. Market economics still have to encourage additional scrapping and zero new vessel building. Of course, this creates a serious dilemma for global shipbuilding yards and national employment.

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 the Philippines. 

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

10. Interest Rates

Interest Rates