Market Perspectives May 4, 2017

1. Chicago Board of Trade Market News

Week in Review

Outlook: It seems a little early for corn futures to be in a “weather market” but the price action this week sure looked like one. On Friday, April 28, corn futures shrugged off forecasts of wet, possibly snowy weather over the weekend. On Monday morning, however, the tune had changed and grain markets jumped higher. July corn added 11 cents by the close, which paled in comparison to near-limit moves in wheat markets. The weekend brought heavy rains across Missouri, Southern Illinois, and much of the Upper Midwest. More notably, heavy snow occurred in Western Kansas and Eastern Colorado while Nebraska received lighter snowfall amounts. 

The weekend’s weather exacerbated concerns about delayed plantings for the corn crop and added to them concerns about washed-out fields and some prevent-plant acres. Prevent-plant acres in Southern Illinois are perhaps the most concerning right now but much of the Corn Belt is still soggy and beginning to run behind the normal planting schedule. Should the weather not offer a substantial break in the next two weeks, there is a good chance a notable number of acres will go from corn to soybeans – or perhaps even remain unplanted. 

Fortunately, however, the forecast for this coming weekend includes dry weather for the Western Corn Belt and Dakotas while Indiana, Southern Illinois, and Ohio could get up to 1 inch of rain. The drier weather across the western Midwest is good news for farmers and is helping relieve concerns at the CBOT. Still more comforting is the fact that U.S. farmers can plant an amazing number of acres very quickly with modern technology. If Mother Nature gives farmers enough of a break, planting progress could quickly leap forward. 

Exports have been bullish the corn market for several weeks now, and this past week was no exception. USDA/FAS reported 2016/17 crop sales of 30.4 million bushels, well above the 11.3 million that was needed to keep pace with USDA’s demand projections. Similarly, exports of 48.3 million bushels were above the 42.5 million required this week to meet USDA’s 2.225-billion-bushel export forecast. YTD exports are up 51 percent while YTD bookings (exports plus unshipped sales) are up 37 percent. With the South American crop coming to market soon, the current export pace is encouraging given that there are still over 180 million bushels yet to be sold if USDA’s demand projections are to be met. 

The latest CFTC data showed funds with a substantial short position, but that was before last weekend’s weather. Sizable short-covering was noted on Monday but funds have again turned to at least mild selling in recent days. This week’s data is likely to show a much smaller short position held by funds but it will not account for the trading activity on Wednesday or Thursday. Reportedly, funds have turned into sellers again today with the improving weather forecasts. 

Going forward, the corn market will likely follow one of two patterns. Either deteriorating weather will spark another CBOT rally or improving weather will leave corn stuck in the same choppy trading pattern it’s been in since March. Given current weather forecasts and the ability of farmers to plant massive acreage quickly, the outlook leans towards choppy trading going forward. 

2. CBOT Corn Futures

CBOT July 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: Over the next 5-7 days, another storm system will impact the Midwest with good chances of heavy rain from Missouri northeast into Michigan. Heavy rains are anticipated along the Gulf Coast from Louisiana to the Florida panhandle, with up to 3-4 inches projected. Much of the eastern third of the United States will see rain, with only southern Georgia and Florida on the lower end of the forecasted amounts. Temperatures will be below normal over the eastern United States as the wet pattern will suppress daily highs. Warmer than normal conditions are anticipated over the High Plains, northern Rocky Mountains and into the Great Basin, with departures of 12-15 degrees above normal anticipated. 

The 6-10 day outlooks show that much of the western half of the United States will expect greater than normal chances of recording above-normal precipitation, especially over the Southwest. Increased chances of drier than normal conditions are projected over the Midwest and Southeast, with the driest locations anticipated to be over south Florida and the upper Midwest. The temperature outlook correlates well with the anticipated precipitation pattern as the greatest chance of cooler than normal temperatures is over the Southwest and Northeast while much of the Southeast, High Plains, and northern Rocky Mountains are anticipating a higher than normal probability of warmer than normal temperatures. 

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 771,600 MT for 2016/2017 were down 22 percent from the previous week and 15 percent from the prior 4-week average. Increases were reported for Japan (184,800 MT, including 51,700 MT switched from unknown destinations and decreases of 5,800 MT), Mexico (153,100 MT, including decreases of 23,800 MT), South Korea (123,600 MT, including decreases of 1,400 MT), Saudi Arabia (73,600 MT, including 70,000 MT switched from unknown destinations), and Taiwan (73,400 MT). Reductions were reported for unknown destinations (80,200 MT). For 2017/2018, net sales of 24,100 MT were reported for Peru (15,000 MT) and unknown destinations (9,200 MT). Reductions were reported for Panama (100 MT). Exports of 1,226,100 MT were down 11 percent from the previous week and 10 percent from the prior 4-week average. The primary destinations were Japan (390,900 MT), Mexico (229,500 MT), South Korea (189,000 MT), Peru (75,100 MT), and Saudi Arabia (73,600 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 294,000 MT is for unknown destinations (163,000 MT) and South Korea (131,000 MT). The current outstanding balance for 2017/2018 of 58,000 MT is for unknown destinations. 

Barley: Net sales of 100 MT for 2016/2017 were reported for Japan. Exports of 200 MT were reported to South Korea. 

Sorghum: Net sales of 102,500 MT for 2016/2017 were up 62 percent from the previous week and 30 percent from the prior 4-week average. Increases were reported for unknown destinations (55,500 MT), China (46,400 MT, including decreases of 6,600 MT), and Mexico (600 MT). Exports of 73,100 MT were up noticeably from the previous week, but down 39 percent from the prior 4-week average. The destinations were China (49,900 MT), Mexico (23,100 MT), and South Korea (100 MT).

 

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: The DDGS market has apparently found equilibrium because prices are unchanged and little news is present. Ethanol plants are reporting their product is at a premium to both the domestic market and Mississippi River barge rates. DDGS Barge CIF NOLA rates have been stubbornly flat for the past two months, hovering between $135-136/MT. Similarly, Chicago prices have been essentially unchanged since March, stuck in a $128-131/MT trading range. 

On the international front, inquiries from Southeast Asian buyers are active but merchandisers are reporting few trades. Traders are confirming May shipments to Indonesia while also noting container movement is signaling shipments to other, yet-unknown locations. Reports are circulating that Korean buyers are interested in July shipments but are not ready to commit just yet. Prices for 40-foot containers to Southeast Asia were flat this week and averaged $176/MT FOB for May. CNF Asia prices were up $0.38/MT at $197.75. 

The recent cold weather across the Southern Plains states and other parts of the Midwest may temporarily boost feed demand for DDGS. Currently, DDGS FOB ethanol plants are priced at 34 percent of the value of soybean meal and 85 percent of the value of cash corn. The per-protein unit cost advantage of feeding DDGS versus soybean meal eroded 15 cents this week as DDGS prices were steady and soybean meal prices fell. 

On the export market, DDGS are priced at 42 percent of FOB Gulf soybean meal values and 92 percent of FOB Gulf corn. The per-protein unit cost advantage of DDGS expanded 6 cents to $1.58 this week, driven by pricing strength for soybean meal. 

DDGS prices will remain stable for the next several weeks unless some unforeseen policy change dictates otherwise. The market has found equilibrium between maintenance-induced supply reductions and already-filled procurements needs. There is little fundamental reason for prices to move significantly one way or the other. Looking toward the summer, however, international demand is expected to remain strong and domestic feed use of DDGS should pick up as well. This should be price supportive, even as ethanol/DDGS production picks up from its seasonal spring lull. 

7. Country News

Africa: Corn loss caused by the armyworm infestation is conservatively estimated to be $3 billion according to the FAO, CIMMYT, and the Center for Agricultural and BioSciences International. (Bloomberg) 

Brazil: Agriculture Minister Blairo Maggi asked the government’s foreign trade chamber, Camex, to impose tariffs on ethanol imports coming from the United States. Most of the ethanol imports are flowing into the northeast and domestic ethanol makers are asking for tariff protection at 16-20 percent. However, traders expect ethanol imports to continue despite any tariffs due to the structural shortage of the fuel in the country. Sugarcane has been diverted to sugar production where it brings a higher price. (Reuters; Plats; S&P Global) 

China: Up to 2.51 MMT of corn from state reserves will go on sale on May 5. Sources will include 394 KMT of 2013 corn from Inner Mongolia, 300 KMT from Liaoning Province, 700 KMT from Jilin Province, and 610 KMT from Heilongjiang Province. The government is expected to lower prices by 10 percent from last year to 1,550 yuan/MT ($224.74/MT) to account for lower quality and to compete against potential imports. Weekly auctions of 3 to 5 MMT are expected until about 30 MMT are sold. 

China National Grain and Oils Information Center says the prospect of lower prices has already made buyers cautious about buying imported barley and sorghum. Feed mills in the south may need up to 20 MMT of state reserve-held corn. Still, Shengda Futures Co. says bidding may not be too active since many mills have stocks of corn they bought from farmers under government incentives. 

Separately, the China Meteorological Administration reports that more rainfall and lower than normal temperatures in the main northeast corn belt are expected to adversely affect seedlings and crop growth. (Bloomberg; Reuters) 

Ukraine: Since the start of the 2016/17 marketing year, Ukraine has exported 5.13 MMT of barley and 16.06 MMT of corn. Those are increases of 21.3 percent and 3.7 percent, respectively. The State Statistics Service says that main storage and processing firms have 18.7 percent greater grain inventories than at this time in 2016. This is largely due to a 67 percent (3.29 MMT) increase in corn reserves, now at a total of 8.22 MMT. (ProAgro)

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 markets are down again this week. The excuse for this is “low trading volumes.” In reality, I think vessel owners and traders simply got overly optimistic in past weeks and ran things up too far, too fast. Though Dry-Bulk markets have bounced off the bottom and stabilized somewhat, there is still a lot of work to be done on the vessel supply verses cargo demand equation. 

Capesize vessels are now getting close to $14,000 MT/day and Panamax vessel are at an average of $8,500/day.

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 Thailand. 

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

10. Interest Rates

Interest Rates