Market Perspectives September 28, 2017

1. Chicago Board of Trade Market News

Week in Review

Outlook: December corn futures are facing a dramatic lack of news. This has left the contract to drift sideways, caught between poor exports to start the new marketing year, a potentially bearish Grain Stocks report, and early yield reports that corroborate USDA’s large yield projections. Still, the contract has not re-tested its current harvest low of $3.44 ¼ and likely won’t until decisive bearish news is uncovered. 

The average estimate for USDA’s September Grain Stocks report is that corn stocks will total 2.35 billion bushels (51 MMT) implying a 2016/17 ending stocks/use ratio of 16 percent. Anything over this figure will be considered decidedly bearish while figures less than expected will be only mildly bullish. 

U.S. exports have gotten off to a slow start in the 2017/18 marketing year. Marketing year total exports have reached 84.5 million bushels (1.84 MMT), only a little more than half of last year’s total at this same time. YTD bookings are similarly down, totaling 446 million bushels (9.7 MMT) versus 729 million (15.9 MMT) this time last year. The large Brazilian crop is certainly pressuring U.S. exports early in the year and USDA’s current projections of a 19 percent decrease in exports looks accurate. So far, the weekly pace of corn exports has been below that which is needed to meet USDA’s projection. 

The U.S. corn harvest stands at only 11 percent complete, versus 20 percent for the 5-year average. Hurricanes Harvey and Irma caused problems for the early harvest in the Delta and southern portions of the Corn Belt, but good weather has improved conditions there and harvest is underway. On balance, the U.S. corn crop is below-average maturity for the last week of September, and norther states are lagging significantly behind in maturation. Fortunately, warm, dry weather is expected for the Upper Midwest which will aid in maturation and drying. 

Early yield reports from the Delta and southern Illinois are pointing to trendline or higher yields, with some farmers reporting record yields. While it is simply too early to draw nation-wide conclusions from these reports, early indications are the USDA’s 169.9 BPA national average yield may not be far from the truth. In total, the U.S. corn crop looks to be more than ample again this year. This will continue to pressure prices, unless significantly reduced yields are discovered as harvest moves north and/or export demand suddenly picks up.

2. CBOT Corn Futures

CBOT December Corn Futures

CBOT Corn Futures

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

US Crop Condition

U.S. Drought Monitor Weather Forecast: In the next day or so, a cold front will push eastward across the Midwest and Northeast, bringing to an end a late-season heat wave. Meanwhile, significant precipitation will fall across southern sections of the Rockies and Plains, with 5-day rainfall totals reaching 2 to 4 inches or more from New Mexico into western and southern Texas. Some flooding can be expected in parts of the middle and lower Rio Grande Valley, where rainfall could locally total at least 4 to 8 inches. During the weekend, dry weather should return to the south-central U.S., while late-season warmth should return (or continue) across most parts of the country. An exception will be the northern Plains and the Northwest, where cool, showery weather will develop over the weekend. Little or no rain will fall during the next 5 days in the Midwestern and Eastern States (except across Florida’s peninsula), as well as California and the Great Basin. 

The NWS 6- to 10-day outlook for October 3-7 calls for the likelihood of above-normal temperatures nationwide, except for cooler-than-normal conditions in California, the Great Basin, and the Northwest. Meanwhile, below-normal rainfall from the mid-South into the Northeast should contrast with wetter-than-normal weather in southern sections of Texas and Florida and from the Pacific Northwest into the upper Great Lakes region. 

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 320,200 MT for 2017/2018 were reported for Mexico (95,200 MT), Peru (82,500 MT, including 25,000 MT switched from unknown destinations), Colombia (60,700 MT, including 50,000 MT switched from unknown destinations and decreases of 800 MT), Japan (36,200 MT, switched from unknown destinations), and Costa Rica (15,500 MT, switched from unknown destinations). Reductions were reported for unknown destinations (24,500 MT) and El Salvador (4,800 MT). Exports of 727,500 MT were primarily to Mexico (267,600 MT), Colombia (161,900 MT), Peru (101,900 MT), and Japan (101,200 MT). 

Optional Origin Sales: For 2017/2018, optional origin outstanding balance of 168,000 MT, all unknown destinations. 

Barley: Net sales of 700 MT for 2017/2018 were reported for South Korea. Exports of 700 MT were reported to Japan (600 MT) and South Korea (100 MT). 

Sorghum: Net sales of 62,000 MT for 2017/2018 resulted as increases for China (51,500 MT, switched from unknown destinations) and Japan (22,500 MT switched from unknown destinations) were partially offset by reductions for unknown destinations (12,000 MT). Exports of 162,000 MT were reported to China (101,500 MT), Japan (55,000 MT), and Mexico (5,500 MT). 

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: DDGS prices are steady this week as buyers are reluctant to purchase after the past few weeks’ rise in prices. Support from soybean meal has helped merchandisers and ethanol plants defend asking prices in light of quieter demand. Last week’s ethanol production fell 3.6 percent, which will further support DDGS prices in the near-term. 

Domestically, FOB ethanol plant prices are $2-3/ST higher while Kansas City Soybean meal gained $7-10/ST. Consequently, DDGS per-protein unit cost advantage against soybean meal increased to $1.84 this week. FOB ethanol plant DDGS are 102 percent of cash corn values. 

FOB Gulf prices are steady this week. FOB soybean meal offering prices are up $3/MT, leaving DDGS values at 51 percent of soybean meal. FOB Gulf corn prices are steady and DDGS are valued at 111 percent of Gulf corn offers. DDGS/corn prices are now in-line with historic levels and a strong fundamental shift will be required in one market to significantly change the valuation ratio. 

Internationally, merchandisers are reporting Vietnamese buyers are actively looking for product through December shipment though interest has slowed this week. Prices for 40-foot containers to Southeast Asia were steady this week, averaging $198/MT, with prices for product destined to China registering the only gains (up $2/MT) for the week.

7. Country News

China: The General Administration of Customs reported that August corn imports at 380 KMT were 14 times greater than the same period a year ago. July’s imports were 910 KMT, the fourth highest amount on record. 

The northeastern province of Heilongjiang province where much of China’s corn is grown will offer investor subsidies and favorable tax policies to encourage a 160 percent increase in corn processing capacity. Most of the 13 MMT increase in capacity over the next three years is expected to go to ethanol production since there is already ample capacity for other products such as starch. New starch/sweetener plants should have annual capacities of 600 KMT to 1.2 MMT of production. (Reuters; Platts)

Kenya: The Agriculture Ministry said that the maize flour subsidy program would continue offering two kilos at Sh90 ($0.86) and one kilo for 47Sh ($0.46). Ongoing heavy rains have slowed harvesting from the main North Rift production area. However, the government will not extend the duty waiver on maize imports. The Parliament has had to cut other programs in order to fund the maize subsidy and to pay for a repeat presidential election on October 17. (Daily Nation) 

New Zealand: DDGS imports from the U.S. are at 113 KMT in 2016-17, triple from the level achieved last year. (Ethanol producer Magazine) 

Zimbabwe: Maize production will reach 2.1 MMT thanks to good weather plus government and donor support in supplying fertilizer. An additional 400 KMT of sorghum and millet will be produced. (NewsDay; The Chronicle) 

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: Dry-Bulk freight markets seem to be quieting down after their recent run up. The Chinese are on holiday this week and vessel owners and operators are looking for the bids that were here last week. The few reported trades that have been seen are at slightly lower rates. All-in-all it looks like the market has simply reversed last week’s gains and is now looking for new direction. Perhaps the market rally has gone as far as needed for the time being? 

In addition to China cancelling one-third of their domestic iron ore mining licenses, a good portion of this past market rally has been technical. It is difficult to project that China will continue to grow imports steadily into 2018 without changing policies again. The market also has to be concerned over the recent spate of new-build vessel orders. Will vessel owners paint themselves right back into the same corner?

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 Vietnam.

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

10. Interest Rates

Interest Rates