1. Chicago Board of Trade Market News
Outlook: Big crops get bigger. USDA proved that adage to be true once again in the September WASDE report. Despite expectations to the contrary, USDA increased the U.S. corn yield, along with production and ending stocks. The report was entirely bearish for corn and the futures market responded in kind, losing 12 cents in short order. However, the market closed well above session lows and bullish signs are emerging around the globe.
USDA’s yield increase was based on higher ear counts in key states but lower ear weights. USDA pegged the U.S. average corn yield at 169.9 bushels per acre (BPA), an increase of 0.4 BPA from the August report. If realized, this would be the fourth largest yield in the past 10 years.
The increased yield boosted USDA’s production estimates by 31 million bushels to 14.184 billion (360 MMT). This is the third highest production figure since 2012, behind last year’s record 15.148 billion bushels (385 MMT) and 2014/15’s 14.2 billion bushels (360-plus MMT). Despite a 25-million bushel increase in Feed and Residual use, the rest of USDA’s adjustments to the U.S. balance sheet were bearish, including a 25-million-bushel reduction in corn for ethanol. In total, 62 million bushels were added to 2017/18’s carry out figure, 2.335 billion bushels, leaving a 16.4 percent ending stocks/use ratio.
Despite the pronounced bearishness of the U.S. supply and demand situation, bullish elements are showing in parts of the globe. Notably, excessive rains in Argentina are increasing the likelihood that as much as half the country’s corn and soybean area might remain unplanted. USDA expects Argentina to produce 42 MMT of corn in 2017/18 and large production reduction from the world’s third largest producer would certainly be bullish.
From a technical perspective, December corn is still in a downtrend but has found considerable support at $3.44-3.45 and may be forming a double-bottom chart formation. Funds were slightly short before the WASDE report but may be slowly building long positions with corn near multi-year lows. December corn closed near the midpoint of its trading range on the WASDE release day, which hints there are hidden bullish factors at work despite the WASDE’s bearish tone. The 20-day moving average has been a significant resistance point for the market in recent weeks and today’s close was just below this point. Should the market sustain a close above this point with decent volume, it may signal harvest lows are established and demand prospects could lift the market higher.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: Beneficial precipitation is expected during September 14-18, 2017 across much of the drought-afflicted areas in the northern Plains and Rockies. Between 1.5 and 3.5 inches are expected across all but the western and northern tiers of Montana, and central and southwestern sections of North Dakota. Moderate rain (0.5 to locally 1.5 inches) is expected in the Upper Midwest and the central Plains, as well as the far Pacific Northwest west of the Cascades. Light precipitation at best is anticipated in other areas of dryness and drought.
The ensuing 5 days (September 19-23, 2017) look to bring a reversal in the temperature pattern recently observed across the 48 states, with odds favoring cooler than normal weather from the northern High Plains and southern Rockies to the Pacific Coast, and warmer than normal conditions expected in the central and eastern parts of the county. There are enhanced chances for above-normal precipitation from central and northern sections of the High Plains westward to the Pacific Coast, most of the Great Plains north of Texas, and the middle and upper Mississippi Valley. Meanwhile, subnormal precipitation is favored in the East, Southeast, most of Texas, and the southern 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 1,046,700 MT for 2017/2018 were reported for Mexico (433,400 MT), Colombia (137,400 MT, including 97,500 MT switched from unknown destinations), unknown destinations (121,600 MT), Japan (118,700 MT), and South Korea (68,500 MT). Reductions were reported for Panama (28,500 MT). Exports of 714,600 MT were primarily to Mexico (385,100 MT), Colombia (98,700 MT), Japan (87,400 MT), Peru (51,800 MT), and Venezuela (30,000 MT).
Optional Origin Sales: For 2017/2018, optional origin outstanding balance of 168,000 MT, all unknown destinations.
Barley: There were no sales or exports reported during the week.
Sorghum: Net sales of 222,300 MT for 2017/2018 were reported for China (165,400 MT) and unknown destinations (66,000 MT), were partially offset by reductions for Mexico (9,200 MT). Exports of 51,300 MT were reported to China (50,600 MT) and Mexico (800 MT).
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS prices are largely steady this week as the untangling from Hurricane Harvey progresses and that from Hurricane Irma begins. Barge CIF NOLA prices are steady to $2/MT higher while FOB Gulf quotes are steady to $5/MT higher. The WASDE report sent corn markets lower but merchandisers used active interest from Asia and limited near-term availabilities to sustain asking prices. Ethanol plants may find ways to produce additional tonnage coming out of the maintenance season to take advantage of the higher pricing.
International DDGS prices are steady to slightly lower this week with the average prices for 40-foot containers to Southeast Asia slipping a modest $1.5/MT to $196.50. Prices to Vietnam, Bangladesh, Myanmar, and China were all $1-2/MT higher while those for product destined for other Asian countries were lower.
From a feed ingredient perspective, FOB ethanol plant DDGS were steady this week while soybean meal prices fell, leaving DDGS $1.61 cheaper than soybean meal on a per-protein unit basis. FOB Gulf DDGS prices are 108 percent of FOB Gulf corn values and 51 percent of soybean meal, with both figures nearing their long-term averages. DDGS look to remain competitive in feed rations in the near term with active international interest and tightened near-term supplies offering support.
7. Country News
Argentina: The Rosario Grains Exchange raised its estimate of the 2016/17 corn harvest to 41 MMT, up from an earlier estimate of 38 MMT, and it predicts that 6.2 million hectares will be planted to corn in 2017/18, up from the 5.85 million hectares planted in 2016/17. However, soggy conditions are wreaking havoc across farm fields and if rainfall continues into October it will begin to impact the area planted to corn and other crops. (Reuters)
China: Corn prices are under pressure as the mid-September harvest period arrives, and the China National Grain and Oils Information Center raised its 2017/18 production forecast to 212.5 MMT (up 1 million tons). Additional burdens on price include ample stocks and large imports of sorghum and barley. The government expects the production/demand ratio to flip from a 10.17 MMT surplus in 2016/17 to a nearly 1 MMT shortfall in 2017/18. It raised the coming year’s corn import requirements to 1.5 MMT, versus an earlier estimate of 1.0 MMT, and it raised the amount of 2016/17 corn imports to 2.0 MMT from an earlier estimate of 1.0 MMT. China’s new commitment to using E10 blended gasoline across the largest auto fleet in the world will require 15 million tons of ethanol each year and nearly a quarter of all the country’s corn production (45 MMT). (Bloomberg; Reuters)
Ukraine: Hot weather is drawing down corn yields in Ukraine. (Reuters)
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: The freight market Bulls still have their hand on the throttle. Global Dry-Bulk ocean freight markets have put in an impressive rally over the past six weeks. Most of this upturn in prices has been attributed to increased purchases of coal and iron ore from China. Note that China has embarked on a program to reduce domestic coal mining by up to 25 percent, which has contributed to an increase in imports of raw materials. But – as everyone should know – pinning your hopes on China continuing any particular policy for an extended period of time is risky.
If you look back to February 2016, Dry-Bulk rates from the U.S. Gulf to Japan were at a low of $22.50/MT. Thus, in the last 19 months these rates have doubled to just over $42.00/MT. It pretty much goes without saying that we have hit bottom and will not return to the low levels of 2016, but it will also be curious to see how long the market can sustain rates at these higher levels – especially after we get past fall grain harvest.
Shipping rates on containerized grain to Asia (and the shipping GRIs) seem to be coming under pressure. This will make containerized grain sales look more attractive versus the higher Dry-Bulk markets cost. We will have to see how much switchover occurs in Asian markets. I see four-five corn vessels in the Northern Brazil port lineup with destination Mexico. Ocean freight from N. Brazil (Itaqui) to East Coast Mexico is about $20-21/MT for a 30,000 MT cargo Santos port would run closer to $22-23.00/MT.
The Texas Gulf hurricanes have passed and U.S. exports out of the Gulf have generally returned to normal volumes. Again, my hat is off in tribute to the elevator employees and railroad workers who worked amazingly hard and fast to get everything back up and running.
The charts below represent YTD 2017 versus 2016 annual totals for container shipments to the Philippines.