Market Perspectives June 1, 2017

1. Chicago Board of Trade Market News

Week in Review

Outlook: Corn market volatility typically increases after May but July futures have shown no interest in doing so – yet. A myriad of factors is pushing the market but competing factors cancel out each individual influence. Poor U.S. weather is offset by good planting progress which is offset by poor condition ratings which is offset by good South American harvest progress. The market remains range bound but with a twitchy feel, like any factor could overwhelm the others at a moment’s notice. 

USDA’s latest Crop Progress report showed 91 percent of U.S. corn is planted, nearly matching the 5-year average of 93 percent. Across the U.S., 65 percent of corn was rated as good/excellent, which is near four-year lows. Crops in Iowa and Michigan were rated comparatively well while Illinois, Indiana, and Ohio had more poorly rated crops. 

Initial crop condition ratings do have correlations to realized yields. Some models suggest that, after aggregating individual state crop condition ratings and yield predictions, the U.S. yield could be near 167 bushels-per-acre (BPA). Similarly, the U.S.-average good/excellent rating mathematically translates to a yield of 169 BPA. These yield predictions are 3 BPA lower than USDA’s May WASDE forecast and point to a more average yield for 2017, compared to recent years’ record yields. 

The Memorial Day holiday delayed the release of USDA’s Export Sales report until Friday but traders are expecting between 450,000-650,000 MT of 2016/17 corn to be sold in this week’s report. Tuesday’s Export Inspections report showed 47 million bushels were exported, just below the 47.8 million needed in this week’s report to match USDA’s 17 percent demand growth projection. The report had a neutral implication for the market while tomorrow’s Export Sales report could have a more pronounced impact. 

The Brazilian safrinha corn harvest has begun, with Mato Grosso and Parana having harvested approximately 1 percent of their production. Brazilian corn prices are falling quickly and, according to one source, are 64 percent lower than this same time one year ago. The low prices are likely to discourage farmer selling which will force exporters to increase local market bids amid falling world prices. Storage space is becoming a problem for Brazilian farmers, however, which may quicken the pace of farmer selling. 

Technical indicators point to more range-bound, sideways trading action for July corn. The 100-day moving average is nearly perfectly flat while shorter-term moving averages are almost equally as stable. Trading volume has been lackluster with little to encourage traders to add to positions. Going forward, pure fundamental factors will drive any sizable market movement.

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. Crop Condition

U.S. Drought Monitor Weather Forecast: From June 1‐4, the heaviest precipitation will be confined along the Gulf Coast, much of Oklahoma, eastern Missouri and northern Illinois. Parts of Florida are also forecasted to receive 1 inch of rain or more. Meanwhile, temperatures will begin warmer than normal in the West and cooler than normal in the Midwest. The abnormal warmth will quickly spread eastward, affecting the Northern Plains on June 2 and the Midwest by June 3. By June 4, much of the CONUS will be warmer than normal with a few exceptions in the Deep South and parts of the Northeast. According to NOAA’s 6- to 10-day outlook, odds are in favor of warmer than normal conditions west of the Rockies, while cooler than normal conditions dominate the east. Odds are in favor of below‐normal precipitation in the Northwest and Midwest while the probability of above‐normal precipitation is high along the eastern seaboard. 

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

Due to the Monday, May 29 holiday, weekly U.S. export sales will be published on Friday, June 2. Updated U.S. export sales will be published in the June 8 edition of Market Perspectives.

Corn: Net sales of 457,200 MT for 2016/2017 were down 35 percent from the previous week and 33 percent from the prior 4-week average. Increases were reported for Japan (227,400 MT, including 156,300 MT switched from unknown destinations and decreases of 5,500 MT), Mexico (68,600 MT, including decreases of 2,600 MT), Taiwan (67,000 MT, including 65,000 MT switched from unknown destinations), South Korea (62,800 MT), and Bangladesh (53,400 MT, including 50,000 MT switched from Nigeria). Reductions were reported for unknown destinations (120,000 MT), Nigeria (50,000 MT), and the Dominican Republic (3,200 MT). For 2017/2018, net sales of 500 MT were reported for unknown destinations. Exports of 1,052,400 MT were down 32 percent from the previous week and 14 percent from the prior 4-week average. The primary destinations were Japan (464,900 MT), Mexico (348,600 MT), Taiwan (70,300 MT), Bangladesh (52,900 MT), and Peru (42,500 MT). 

Optional Origin Sales: The current optional origin outstanding balance for 2016/2017 of 191,000 MT is for unknown destinations (123,000 MT) and South Korea (68,000 MT). The current 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 reductions of 3,200 MT for 2016/2017 resulted as increases for China (49,200 MT, switched from unknown destinations) and Mexico (600 MT), were more than offset by reductions for unknown destinations (53,000 MT). Exports of 49,400 MT were down 41 percent from the previous week and 47 percent from the prior 4-week average. The destinations were China (49,200 MT) and Mexico (200 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: The holiday-shortened trading week left DDGS prices mostly steady with a higher undertone for domestically-consumed product. Some were expecting more volatility following the holiday but trading has been quiet so far. FOB NOLA prices were steady to $5/MT higher, depending on the delivery month. June shipments continue to be tough to find and offers for August increased $7/MT this week. 

The Southeast Asia market has been softer this week, despite robust exports done so far this year. Korean buyers are saturated with product for nearby delivery and are bidding $5-8/MT under offers for forward delivery. 

Domestically, DDGS are priced at 85 percent of cash corn and 36 percent of Kansas City soybean meal. The per-protein unit cost of DDGS is $1.85 lower than that of soybean meal, though DDGS’ advantage slipped from last week due to weakness in the soybean meal market. The USDA’s May Cattle on Feed report showed a 2 percent increase in feedlot inventories from last year, which will be positive for U.S. DDGS consumption. 

On the export front, DDGS are priced at 96 percent of FOB Gulf corn, equal to last week’s value, and 47 percent of soybean meal. The per-protein unit cost of DDGS versus soybean meal favors DDGs by $0.75 currently, down from $0.94 last week. It is important to note, however, that changes in the DDGS/soybean meal cost ratio is due to weakness in soybean meal prices, not DDGS. DDGS exports have been robust so far this year and look to remain so. 

7. Country News

China: A government auction of corn from the 2013 crop resulted in sales of 3.2 MMT with an average value of 1,377 yuan/MT (US$202.38/MT). 

Sub-Saharan Africa: South Africa’s Crop Estimates Committee expects the nation’s farmers to reap an “unprecedented” 15.63 MMT of maize this year. It is the only Sub-Saharan country to approve GMO’s and 70 percent of the maize crop is GMO. Notably, South Africa’s corn yield is around twice that of the rest of Sub-Saharan Africa’s combined average yield. 

By contrast, drought conditions in east Africa have severely limited crop production in Kenya, Uganda, Somalia, Ethiopia and South Sudan. South Africa could supply them with maize, but Jacques Pienaar of Commodity Insight Africa says that limited transportation linkages, trade barriers and GMO prohibitions make it difficult. 

Further: The price of South African white maize for July delivery has fallen to R1,652.60/MT (US$127.84/MT), the lowest level in three years for the most active contract. South Africa would like to sell its 3.6 MMT surplus into East Asia but its production of white corn will have less appeal there. (Reuters; Bloomberg) 

Zimbabwe: The government had reduced the mandatory blending of ethanol with petrol down from 15 percent to 5 percent in March, but now has increased the amount to 10 percent. Supplies had been tight in March but now there are increased supplies available.

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: I do not want to sound like a broken record, but there is not much new to say about these freight markets other than the fact that they slipped lower again this week. Global ocean freight markets simply got too optimistic about the future during the first two quarters of 2017 and now they are waking up to reality. Some operators gave up “slow steaming” practices and this added to market efficiencies and the vessel oversupply situation. Desperate owners push for all they can get out of market rallies and then end up shooting themselves in the foot. This week’s soft markets are being blamed on a short holiday week, but we know this is not the root cause. Though cargo demand will not likely support a rally in the coming weeks, we are most likely to entering a period of sideways market action until the U.S. fall harvest.

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 Hong Kong.

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

10. Interest Rates

Interest Rates