1. Chicago Board of Trade Market News
Outlook: December corn jumped sharply higher Thursday, after hitting another new low for 2017 earlier in the week. The move higher was motivated by USDA’s report of China buying 142,000 MT of old-crop U.S. corn and from commodity index fund buying. With corn, wheat, and soybeans at or near multi-year lows, commodity funds view the sector as ripe with opportunity.
Commercial users, however, may hold a different view. Cash corn prices averaged less than $3/bushel for the first time this year, showing that commercials have no worries about procuring product into the fall and winter. It will be difficult for the market to sustain a significant move higher without commercial participation in the rally and higher cash prices or basis levels. Thursday’s trading activity in corn spreads showed evidence of commercial buying, however.
USDA’s export sales report was largely neutral for corn. The report had more sales than were needed but actual shipments were 14.4 million bushels less than needed to meet USDA’s projections. With YTD bookings for old-crop corn above USDA’s projected export of 2.225 billion bushels and YTD exports less than that target, it seems USDA’s figures will be just about right. Now, the attention will turn to new-crop exports and the U.S.’ ability to compete against Brazil.
From a technical perspective, cracks are starting to appear in December corn’s downtrend. On Thursday, the contract closed above $3.50, what had been a key support level, in decisive fashion. Index fund buying and other traders rolling from the September contract into the December pushed the later contract 12 ¼ cents higher to $3.57 ¾. Trading volume was robust with over 265,000 contracts trading hands. The move came when the contract was deeply oversold and ripe for a correction. For now, the long-term trend remains bearish but momentum is starting to swing bullish. December corn is attempting to put in its seasonal lows and with the U.S. yield still undecided and potentially smaller than expected, this is a poor place to turn bearish.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: The remnants of Hurricane Harvey will slowly drift up the Ohio Valley and Atlantic seaboard during the next 3 days. Heavy rains may produce 2-8 inches across the South and Southeast. Separately, the southern Rockies may see some precipitation amounts totaling 0.5-1 inch. Temperatures will be generally 10 degrees Fahrenheit below normal in the east, following the track of Harvey and at least 10 degrees Fahrenheit above normal in West. The longer-range forecast calls for increased probability of cooler than normal temperatures stretching from the Gulf Coast into the Ohio Valley. The odds are high that warmer than normal temperatures will persist in parts of the West. The probability of above normal precipitation is highest along the Atlantic seaboard and Southwest. The probability is high that dryness will continue in the Midwest.
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 188,400 MT for 2016/2017 were up 84 percent from the previous week and up noticeably from the prior 4-week average. Increases were reported for China (142,000 MT), Japan (83,800 MT, including 80,100 MT switched from unknown destinations), Colombia (63,000 MT, switched from unknown destinations), Peru (49,300 MT, switched from unknown destinations), and Guatemala (37,400 MT, including 34,700 MT switched from unknown destinations and 400 MT switched El Salvador). Reductions were reported for unknown destinations (225,600 MT), Nicaragua (2,700 MT), and Venezuela (2,000 MT). For 2017/2018, net sales of 804,200 MT were reported primarily for unknown destinations (237,800 MT), Mexico (159,800 MT), and Guatemala (114,900 MT). Exports of 983,800 MT were up 36 percent from the previous week and 13 percent from the prior 4-week average. The primary destinations were Mexico (348,700 MT), Japan (201,500 MT), China (142,200 MT), Colombia (85,700 MT), and Guatemala (62,600 MT).
Optional Origin Sales: The current 2016/2017, optional origin outstanding balance is 54,000 MT, all unknown destinations. New optional origin sales for 2017/2018 of 60,000 MT were reported for unknown destinations. The current outstanding balance is 172,000 MT, all unknown destinations.
Barley: No net sales were reported for the week. Exports of 200 MT were reported to Taiwan (100 MT) and South Korea (100 MT).
Sorghum: Net sales of 280,300 MT for 2016/2017 were up noticeably from the previous week and from the prior 4-week average. Increases were reported for China (268,300 MT, including 53,000 MT switched from unknown destinations and decreases of 2,200 MT) and unknown destinations (12,000 MT). For 2017/2018, net sales of 54,000 MT were reported for China. Exports of 154,900 MT were up noticeably from the previous week and up 58 percent from the prior 4-week average. The destinations were China (154,000 MT) and Mexico (900 MT).
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS prices were softer early this week, in sympathy with those of corn, as merchandisers sought to keep DDGS competitive in feed rations. Merchandisers, however, pointed to near-term supply limitations that kept the market from falling more than $5/MT. With Thursday’s 12-cent rally in corn futures, however, DDGS prices moved $3/MT higher as ethanol plants positioned themselves defensively. Some traders are anticipating profit taking from short corn futures positions to continue over the Labor Day weekend, thereby offering very near-term support for DDGS prices.
Merchandisers and exporters are reporting overseas demand has been weaker this week. International buyers are waiting for corn futures to stabilize/hit seasonal lows before procuring DDGS supplies. Prices for 40-foot containers to Southeast Asia were essentially unchanged this week, though prices to Japan fell $4- 6/MT. Today’s corn futures rally will likely spark some buying interest from the international community and pricing strength should return to the market.
Domestically, DDGS are prices at 106 percent of cash corn and 39 percent of Kansas City soybean meal. On a per-protein unit basis, DDGS are $1.51 cheaper than soybean meal. Barge CIF NOLA prices fell $4/MT early this week while FOB U.S. Gulf prices lost $6/MT. Of course, Hurricane Harvey is creating disruptions for exporters in the region and prices reflect these logistical constraints. FOB Gulf DDGS prices are 109 percent of those for FOB Gulf corn, down from the past two weeks and below historic norms.
7. Country News
Brazil: Brazil will export 5 MMT of corn in August and is forecast to supply half the world’s corn needs during the August to January 2018 timeframe. (Reuters)
China: China has sold 41.7 MMT of corn since May 3, and while prices are lower than last year they remain above import prices in Guangzhou – the feed-deficit region of the country. Corn is being held in government warehouses and the market may choose to buy imported grain. (Reuters)
Russia: The country’s shipping and storage capacity are at a peak as the largest crop in a quarter century is being harvested. Russia’s grain exports have more than doubled in four years and are up 28 percent this year over last. Some are struggling to sell low quality wheat to make room for storing corn. (Bloomberg)
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: The Baltic Panamax Ocean freight and physical markets fell back a little this week. I think it has mostly been a case of having gone up too far too fast over the last month.
The bigger news this week is, of course, is hurricane Harvey and the impact it is having on South Texas and the Texas ports. At this time, all Texas ports are closed until further notice. Ships are in the harbor but nothing is moving. It is not yet known when grain loading operations will resume. Aside from the physical damage that the flooding has caused around Houston and Corpus Christi, it is going to be a challenge for export employees to return to work – many without home to return to. The storm is now hitting New Orleans, LA.
Rail grain exports to and through Texas en-route to Mexico have also been severely impacted with large sections of track underwater. Of course, this means that there will be serious delays in loading vessels and executing on contracts. Grain buyers need to read their contract terms carefully and be ready to negotiate to protect their supply chains. As they say in the grain business: “Never let the chickens go hungry.”
The charts below represent YTD 2017 versus 2016 annual totals for container shipments to South Korea.