Market Perspectives October 26, 2017

1. Chicago Board of Trade Market News

Week in Review

Outlook: The delayed U.S. corn harvest has commensurately delayed hedge pressure in the market, leaving traders, farmers, and agribusinesses largely directionless in anticipating prices. There is a growing feeling that harvest-time lows should have already been established and that prices should begin a slow grind higher soon. However, with only 38 percent of U.S. corn harvested (and, presumably, a similarly low number hedged), there is also a growing expectation that farmer hedge selling will pick up soon and pressure prices further. Consequently, December corn futures have been trading sideways and are likely to continue this trendless trend going forward. 

U.S. corn exports have picked up in recent weeks but remain well behind last year’s pace. U.S. FOB Gulf corn is becoming increasingly competitive against Brazil, carrying a 6-cent premium this week versus 10 cents last week – which helped sales this week. The USDA’s Export Sales report showed 50.7 million bushels of net sales and 23.8 million bushels of exports, a relatively neutral combination but one that also exceeded traders’ expectations. Export shipments were below the weekly pace needed (45.3 million bushels) to meet USDA’s projection, and currently stand at 10 percent of USDA’s total forecast. However, shipments this week exceed what traders thought would be exported, a sign that international markets may be changing. 

Corn harvest progress remains slow across the U.S. as farmers focus on collecting soybeans first. USDA’s weekly Crop Progress report showed over 90 percent of corn is rated “Mature”, which is on-average for this time of year, but only 38 percent had been harvested. Typically, by this point in October over half the crop is harvested. With the crop mature, traders are likely to ignore the harvest progress statistics, especially given generally good weather forecasts for the coming week. 

The technical perspective on December corn remains murky and decidedly range-bound. However, it is relevant to note that while managed money funds are net short, their position isn’t as big as in this same time during previous years. Therefore, there is possibility for both a down-side breakout or an upside rally, should something spark the market. With harvest pressure likely increasing and concluding in the next few weeks, the market may yet see additional pressure. Additionally, the dollar index appears to be forming a bullish chart formation, which could be damaging for U.S. corn exports. However, U.S. corn is gaining competitiveness internationally and growing weather issues in South America could continue to support the market.

2. CBOT Corn Futures

CBOT December Corn Futures

CBOT Corn Futures

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

U.S. Drought Monitor Weather Forecast: Wet weather across parts of the East will contrast with mostly dry weather elsewhere. Welcomed showers falling across the Northeast as of Wednesday, October 25, will be followed by a potentially soaking rainfall over the weekend. Forecast guidance suggests 7-day rainfall could top 5 inches across much of New England, while somewhat lesser amounts (1-3”) fall from the central Appalachians into the Mid-Atlantic States. Rain and snow will accompany a storm system in the Great Lakes, while showers along a trailing cold front sweep across the interior Southeast. Otherwise, mostly dry weather is expected across the central and western U.S. The NWS 6- to 10-day outlook for October 31-November 4 calls for near- to below-normal precipitation across much of the nation, with wetter-than-normal weather confined to the nation’s northern tier save for the Northwest. Colder conditions are expected from the Plains to the Appalachians and Gulf Coast, while above-normal temperatures prevail in New England and the central and southern Pacific Coast into southern Texas. 

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 1,288,300 MT for 2017/2018 were up 3 percent from the previous week and 32 percent from the prior 4-week average. Increases were reported for unknown destinations (357,500 MT), Japan (257,500 MT, including 95,500 MT switched from unknown destinations), Mexico (154,000 MT, including decreases of 7,100 MT), South Korea (136,500 MT), Spain (120,000 MT), and Peru (87,100 MT, including 30,500 MT switched unknown destinations and decreases of 41,600 MT). Reductions were reported for Venezuela (11,000 MT). For 2018/2019, net sales of 96,800 MT were reported for Mexico (90,000 MT) and Peru (6,800 MT). Exports of 604,400 MT were primarily to Mexico (198,400 MT), Peru (136,500 MT), Japan (95,500 MT), Colombia (90,900 MT), and Costa Rica (29,200 MT). 

Optional Origin Sales: For 2017/2018, options were exercised to export 60,000 MT to unknown destinations from other than the United States. The current optional origin outstanding balance is 168,000 MT, all unknown destinations. 

Barley: For 2017/2018, no net sales were reported for the week. For 2018/2019, net sales of 7,100 MT were reported for Japan. Exports of 600 MT were reported to Japan (500 MT) and Taiwan (100 MT). 

Sorghum: Net sales of 3,400 MT for 2017/2018 resulted as increases for China (69,400 MT, including 66,000 MT switched from unknown destinations), were partially offset by reductions for unknown destinations (66,000 MT). Exports of 72,000 MT were reported to China (70,400 MT) and Mexico (1,600 MT). 

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: U.S. DDGS prices are mostly unchanged this week and lack clear direction. Near-term supplies remain tight but buying interest is quiet with plenty of cheap corn available. The U.S. market is showing a small carry and feed mills are waiting for a more bearish scenario to develop before purchasing. The domestic market’s carry, combined with a neutral/bearish outlook from overseas buyers, is creating a growing spread and light trading volumes. 

Domestically, CIF NOLA barge DDGS prices are flat this week while FOB Gulf prices fell $0.75/MT in sympathy with lower corn prices. FOB Gulf product quotes averaged $176.25 this week. DDGS rail-delivered to the PNW increased $2.50/MT to their last quote of $195/MT, likely in response to growing Chinese demand. FOB ethanol plant prices are 37 percent of Kansas City soybean meal values and 101 percent of cash corn values, a 1 percent increase in each ratio from last week. DDGS maintained a $1.86 per-protein unit cost advantage over soybean meal, which will keep the ethanol co-product competitive in feed rations this fall. 

Internationally, DDGS prices CIF Southeast Asia were steady/higher this week, posting a $1/MT gain on average. Prices for 40-foot containers to China increased $7/MT for nearby shipments while December and January shipment prices rose $9/MT. The rising prices for China-destined product is likely indicative of that country’s increasing protein demand, which could signal increased imports of feed grains and soybeans/soy products later this year. While Chinese prices increased the most, $3/MT gains were noted for product destined for South Korea and the Philippines. Notably, prices increased for all nearby shipments to Southeast Asia this week.

7. Country News

Argentina: The agriculture ministry says farmers will plant corn on 8.92 million hectares (22 million acres), a 5.2 percent increase over last year. (Reuters) 

China: At 2.28 MMT, corn imports are down 23 percent versus last year but the 250 KMT brought in during September was a 13-fold increase versus the same month a year ago. Meanwhile, the National Development and Reform Commission announced that future minimum process will be linked to the cost of production, market demand, foreign prices and the overall development of the industry. (Reuters)

Iran: The Islamic Republic of Iran Customs Authority announced that 650.5 KMT of barley was imported during the first five months of this year. The imports were valued at 117.21 million. (Global Data Point) 

Russia: Prime Minister Dmitry Medvedev announced that in 2017, Russia will produce the largest grain crop in 100 years. At 132 MMT, the surplus will enable an all grain export figure of 45 MMT. (Intellinews – Russia Today)

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 ocean freight markets lost some of their steam this week. Again, maybe traders got a bit overly optimistic and just went with the prevailing momentum? After all, we have experienced an impressive rally over the last two months and must wonder how much further things can go. Daily hire rates for Panamax vessels for the balance of 2017 dropped to an average of $12,500/day while 2018 hire rates sank to an average of $9,700/day in the Atlantic. 

A note on Panamax Dry-Bulk ocean freight rates for corn or soybeans to HCMC Vietnam: The appropriate market spreads on this route are not necessarily a direct thing to rate. If you are going from the U.S. Gulf via the Cape of Good Hope the steaming time to Vietnam (versus Northern China) is shorter, so, that freight would be a little cheaper. However, routing via the Panama Canal the distance is longer and thus more expensive. So, on average maybe it is best to say that the rate from the U.S. Gulf to Vietnam is about the same as to Northern China (give or take $1.00/MT depending on routing). The freight spread between N. China versus S. China is generally a $1.00-1.50 difference. Close to 90 percent of the Panamax vessels going from the U.S. Gulf to China are currently going around the Cape rather than thru the Panama Canal. This is due to relatively cheap fuel prices and the desire to avoid paying Canal fees.

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 the Philippines.

 

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

10. Interest Rates

Interest Rates