1. Chicago Board of Trade Market News
Outlook: July corn has broken its mild uptrend with Thursday’s 6-cent drop. This week’s trading erased all the early June weather market gains but there are still bullish factors increasing upside potential. Domestic and international corn demand remains solid and the weather forecast isn’t set in stone.
Weak crude oil prices pressured ethanol futures and contributed to decreasing ethanol output. Ethanol production fell to 990,000 barrels per day this week, down 12,000 barrels per day from the prior week. Ethanol stocks fell to 22.28 million barrels as summer driving and gasoline demand remains robust. Wednesday’s EIA report also noted a bigger-than-expected draw in crude oil inventories, which will support oil and ethanol prices. The energy outlook – particularly ethanol and crude oil stocks/inventories – is bullish for corn. Some private firms are forecasting corn used for ethanol in the 2016/17 crop year to hit 5.560 billion bushels, above USDA’s current projection of 5.45 billion bushels.
Brazil’s corn harvest is 5 percent complete, which is behind last year’s pace but not worryingly so. The delayed harvest and slow farmer selling has kept FOB prices in a very competitive range versus the U.S. Gulf. Currently, U.S. Gulf FOB prices are $0.04/bushel over those for FOB Paranagua corn, a small enough difference to keep U.S. corn competitive on the export market.
The USDA said 48 million bushels of corn were inspected for export last week, a bullish amount that keeps U.S. exports 44 percent higher than this time last year. With 11 weeks left in the corn marketing year, YTD exports are well above USDA’s projected demand increase of 17 percent. This has many analysts expecting USDA to reduce U.S. ending stocks in upcoming WASDEs. If corn exports remain robust for the remainder of the marketing year, USDA could reduce U.S. ending stocks by 200-300 million bushels.
Last Friday, the CFTC reported managed money funds had their second-largest short covering effort in corn market history. Funds bought back over 123,000 futures contracts of their short position to end the week with a nearly flat position. Since then, corn futures open interest has increased, suggesting funds are again selling the market in the face of better Corn Belt weather.
From a technical perspective, July corn broke the trendline that was slowly helping prices higher. Chartists will look to $3.60 ¾ (the April 21 low) as a key point for the contract: continued closes above this point will keep corn in its $3.60-3.75 trading range while closes below will prompt more bearish outlooks. The market’s two-month sideways trend has left moving averages as less-than-useful indicators and momentum indicators will likely be more reliable in the near-term. The RSI is neutral but the MACD and stochastic oscillators are showing more bearish swings.
Given good corn demand both domestically and internationally, combined with likely reductions in USDA’s ending stock figures, it seems corn still has bullish possibilities. Near-term good weather will dampen enthusiasm for building new long positions, however, and a period of depressed prices and volatility will likely ensue. However, given spreading dryness in the Midwest and solid demand, it seems an ill-advised place to turn bearish.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: During the next five days (June 22-26), the NHC guidance indicated that Tropical Storm Cindy (located in the northwestern Gulf of Mexico at 1 pm EDT Wed) will track north, then northeast, then eastward into southwestern Virginia by 7 am EDT Saturday. The WPC’s 5-day QPF forecasts the heaviest rains over and to the east of Cindy’s center, with 2-5 inches of rain expected in the lower Mississippi and Tennessee Valleys into the central Appalachians. Decent rains (2-3 inches) are also expected in the Texas Panhandle and across Wisconsin and Michigan. Little or no precipitation is expected in the northern Plains and from the Rockies westward, and only light amounts in the western Corn Belt, coastal New England, and parts of Florida. Five-day temperatures should average below-normal from east of the Rockies to the Appalachians, above-normal in the Far West, and near-normal along the East Coast.
For the ensuing five-day period (June 27-July 1), odds favor above-median precipitation in the southern Plains, along the Gulf and southern Atlantic Coasts, and in the Great Lakes region and New England, with sub-median rainfall in the Northwest, and the Tennessee Valley. Chances favor subnormal temperatures in the eastern half of the Nation while above-normal readings are likely in southern Florida and west of the Rockies.
Follow this link to view current U.S. and international weather patterns and future outlook: Weather and Crop Bulletin.
4. U.S. Export Statistics
Corn: Net sales of 528,800 MT for 2016/2017 were down 12 percent from the previous week, but up 16 percent from the prior 4-week average. Increases were reported for Japan (249,600 MT, including 57,500 MT switched from unknown destinations and decreases of 13,100 MT), Mexico (82,200 MT, including 25,000 MT switched from unknown destinations and decreases of 7,300 MT), Israel (55,500 MT, including 50,000 MT switched from unknown destinations), South Korea (52,800 MT, switched from unknown and decreases of 10,700 MT), and Spain (48,500 MT, including 40,000 MT switched from unknown destinations). Reductions were reported for unknown destinations (118,600 MT), Colombia (4,300 MT), and the Dominican Republic (3,700 MT). For 2017/2018, net sales of 124,000 MT were reported for Mexico (120,000 MT) and El Salvador (4,000 MT). Exports of 1,211,500 MT were up 22 percent from the previous week and 6 percent from the prior 4-week average. The primary destinations were Mexico (378,100 MT), Japan (336,300 MT), South Korea (127,000 MT), Israel (67,500 MT), and Peru (49,500 MT).
Optional Origin Sales: The current optional origin outstanding balance for 2016/2017 of 122,000 MT is for South Korea (68,000 MT) and unknown destinations (54,000 MT). The current outstanding balance for 2017/2018 of 112,000 MT is for unknown destinations.
Barley: Net sales of 800 MT for 2017/2018 were reported for Taiwan (500 MT) and South Korea (300 MT). Exports of 700 MT were reported to Japan (600 MT) and South Korea (100 MT).
Sorghum: Net sales of 62,100 MT for 2016/2017 were up 2 percent from the previous week and up noticeably from the prior 4-week average. Increases were for China (59,100 MT, including 55,000 MT switched from unknown destinations) and unknown destinations (3,000 MT). Exports of 63,800 MT were up noticeably from the previous week, but down 2 percent from the prior 4-week average. The destinations were China (59,100 MT), Mexico (4,600 MT) and South Korea (100 MT).
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS prices were steady this week despite volatility in corn and ag futures market prices. Flagging ethanol production supported merchandisers’ efforts to defend offers while international buyers held to low bids. Despite it being a quiet trade week, pricing consistency aided in slowly narrowing the bid/ask spread.
Nationally, the average FOB ethanol plant price for DDGS increased $3-4/MT to $105.22/MT. Kansas City soybean meal prices were largely steady, pushing DDGS’ per-protein unit cost advantage two cents lower to $1.83. Barge CNF NOLA rates were $3/MT lower at $146/MT.
On the international market, FOB Gulf DDGS were $1/MT lower at $160/MT while corn FOB Gulf prices fell slightly. DDGS are priced at 101 percent of FOB Gulf corn, down from last week and still historically undervalued. Prices for 40-foot containers to Southeast Asia averaged $187/MT this week, steady with the week prior. Freight rates increased this week but CNF Asia prices were unchanged as merchandisers completed trades on tight margins to promote business.
7. Country News
Brazil: Corn production is on pace to reach a record 95 MMT, up 30 percent from last year. The second crop currently being harvested may have some quality issues but overall is in good condition. However, storage options may be limited. (USDA/FAS)
China: Only 120 KMT of corn was sold on June 22 out of the 1.3 MMT offered. Out of the 14 auctions since May 3, over 23 MMT of reserve corn has been auctioned and at a lower average price than a year earlier. The average auction price ($199/MT; $5.06/bu) is 39 percent below the original acquisition cost, excluding storage and interest costs. Last year the government auctioned 20 MMT of corn and directly sold an additional 20 MMT. Notably, corn prices remain relatively high in the grain deficit south where imports of corn, sorghum and barley should be attractive. (Bloomberg; Brokers Reports)
Mexico: The Energy Regulatory Commission approved a plan to expand the ethanol blend requirement to 10 percent. The Association for Sustainable Movement says it will require a $1 billion investment to build 10 plants over the next five years to refine ethanol. Separately, 120 KMT of corn was purchased this week from the U.S. and nearly 10 MMT of the 13 MMT of American corn purchased thus far this year has been shipped. (Bloomberg; Platts)
Paraguay: Thousands of farmers are protesting a government plan to impose a 15 percent export tax on corn, soy, and wheat exports. A vote on the measure will occur next week in the Congress and is backed by President Horacio Cartes’ party. (Reuters)
Ukraine: UkrAgroConsult says the corn crop is in good condition due to optimal growing conditions for plant growth, development, grain formation and filling. (Bloomberg)
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: Baltic Freight Traders staged a decent rally this week. The Baltic Panamax index rose to 1,109; up 18 percent from last week’s close. As usual, the physical market did not follow in lock step. Physical markets were up 1-2 percent week-over-week and did not exhibit as much enthusiasm as the Baltic Index Traders seem to have. The larger Capesize freight markets actually fell back a bit this week.
What is concerning, however, is that I see the orders for new vessels starting to creep back up. This is not what the market needs and is just a continued example of why vessel owners are their own worst enemy. Will they ever learn?
The charts below represent YTD 2017 versus 2016 annual totals for container shipments to South Korea.