Market Perspectives November 30, 2017

1. Chicago Board of Trade Market News

Week in Review

Outlook: March corn futures are in a bearish trend and can’t seem to find much bullish news. U.S. exports are lagging both last year’s pace and that needed to reach USDA’s projections. Meanwhile, USDA issued an early 2018 corn market forecast that kept production near this year’s level. The story continues to be that the world is awash in corn with few prospects for boosting demand or cutting supplies. At this point, the best chances for a bullish corn story are from a weather issue in South America or for a demand-boosting policy intervention by a major exporting or importing country. 

USDA’s long-term projections were released this week and featured 2018 projections of 91 million acres planted to corn, and the same amount planted to soybeans. USDA’s 2018 corn production figure came in at 14.5 billion bushels, essentially equal to this year’s production. The report was largely bearish the corn market, but traders seldom put much stock in this report’s figures. The true planted area will be determined next spring, and projections at this point are just projections. 

U.S. corn exports are behind last year, reaching 36 percent of what was exported by the end of November 2016. Today’s Export Sales report included 23.6 million bushels of corn sold (behind the 26.4 million needed this week) and 25.6 million bushels exported (behind the 39.3 million needed). YTD exports are only 15 percent of USDA’s projected total, even though 21 percent of the marketing year has elapsed. USDA will likely lower its export forecast in future WASDE reports. 

The U.S. corn harvest continues to lag last year’s pace, potentially putting some of the crop at risk. USDA reported 95 percent of the crop was harvested as of last week, behind last year’s 98 percent pace. If USDA’s projections are correct, this leaves approximately 730 million bushels still standing in the field. Most of this crop is in the Eastern Corn Belt, which experienced a wet fall this year. The weather is forecast to dry out some this week, allowing farmers to harvest that last 5 percent. 

From a technical perspective, March corn has put in new lows and is following bearish moving averages. However, the contract seems to have found support at $3.50 and is rebounding from that point. With funds holding large short positions and corn becoming cheap by commercial standards, there are low odds of the market putting in significant new lows. Conversely, there is little news to spark any rally in the market and choppy trading is expected going forward.

2. CBOT Corn Futures

CBOT March Corn Futures

CBOT Corn Futures

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

U.S. Drought Monitor Weather Forecast: The NWS WPC 7-Day Quantitative Precipitation Forecast (QPF) calls for liquid precipitation accumulations of 2-to-5 inches in western Washington and 1-to-2 inches across the Northern Rockies of Idaho and Montana. Accumulations of 0.5-to-1 are forecast for the central and southern Rockies. Accumulations of an inch are expected in the lower Midwest and northern portions of the South. The CPC 6- to 10-day outlook calls for a high probability of above-normal temperatures across the eastern half of the conterminous U.S. as well as in western Arizona, California, and western Nevada while below normal temperatures are expected in a swath extending from west Texas to eastern portions of the Pacific Northwest. 

In terms of precipitation, below normal precipitation is expected across the western third of the conterminous U.S. while a high probability of above normal precipitation is forecast for the eastern third of the U.S. and eastern portions of the Desert Southwest. 

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 599,200 MT for 2017/2018 were down 45 percent from the previous week and 54 percent from the prior 4-week average. Increases were reported for Mexico (205,000 MT, including decreases of 2,000 MT), Japan (201,200 MT, including 91,900 MT switched from unknown destinations and decreases of 200 MT), South Korea (71,200 MT), Costa Rica (57,400 MT, including 27,700 MT switched from Honduras), Colombia (43,600 MT, including 40,000 MT switched from unknown destinations and decreases of 1,900 MT), and Morocco (25,000 MT). Reductions were reported for unknown destinations (38,600 MT). Exports of 651,200 MT were primarily to Mexico (268,800 MT), Japan (114,700 MT), Peru (111,500 MT), Colombia (70,200 MT), and Costa Rica (28,100 MT). 

Optional Origin Sales: For 2017/2018, new optional origin sales of 6,000 MT were reported for Taiwan. Options were exercised to export 66,000 MT to Taiwan (including 60,000 MT, switched from unknown destinations) from other than the United States. The current optional origin outstanding balance is 257,500 MT for South Korea (138,000 MT) and unknown destinations (119,500 MT). 

Barley: No net sales were reported for the week. Exports of 1,200 MT were reported to Japan (1,100 MT) and Taiwan (100 MT). 

Sorghum: Net sales of 328,000 MT for 2017/2018--marketing-year high--were up 2 percent from the previous week and 26 percent from the prior 4-week average. Increases were reported for China (262,000 MT, including decreases of 3,000 MT) and unknown destinations (66,000 MT). Exports of 217,100 MT--a marketing-year high--were up noticeably from the previous week and from the prior 4-week average. The destinations were China (204,900 MT), Japan (10,500 MT), and Mexico (1,700 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: DDGS prices have remained elevated since news of China’s VAT reduction but have failed to make new highs. It’s been a generally quiet post-holiday week. Prices at the U.S. Gulf firmed slightly from last week while stronger increases were seen in prices for rail-delivered DDGS to the U.S. PNW and California. Containers to Asia were mixed, with increases seen for Indonesia, Malaysia and Japan and decreases for containers to the Philippines and Bangladesh. Merchandisers report an uptick in interest from Korean, Indonesian and Vietnamese buyers. 

The onset of winter weather for the Midwest has boosted DDGS feed demand. FOB ethanol plant DDGS are priced at $118/MT, down slightly from last week. DDGS are valued at 38 percent of Kansas City soybean meal and 104 percent of cash corn values, with the ethanol co-product becoming more competitive since last week. DDGS hold a $1.76 per-protein unit cost advantage versus soybean meal, up from last week which will continue to pull DDGS into feed rations.

7. Country News

Brazil: The Brazilian grain exporters association ANEC revised upward its estimate for corn exports this year. Drought in the competing Eastern European region prompted a 3 MMT increase from November in the forecasted export of corn to 33 MMT. (Reuters) 

Canada: Feed barley bids have shown strength that could carry into the spring with the only threat being corn imports from the U.S. A lot of good-quality but low protein wheat is priced on par and acquisition of local feed benefits from multiple sources, whereas corn relies on rail deliveries. (Commodity News Service Canada) 

China: At least 10 to 12 cargoes (700 KMT) of mostly U.S. corn was purchased for delivery during February-April. Higher domestic prices (1,830 yuan/MT) and attractive import prices (1,530 yuan; $232/MT) has some trading houses predicting that corn imports will hit 5 to 5.5 MMT rather than the 3 MMT predicted by USDA. Domestic prices for sorghum and feed barley are also rising. (Reuters) 

COFCO Biochemical intends to invest 5.5 billion yuan during 2017-2020 in expanded corn refinery processing in northeast Jilin province. It will boost output capacity by 3 MMT/year including 600 KMT of ethanol. (Bloomberg) 

Philippines: The National Corn Competitiveness Board is seeking to lift the current prohibition on exports, citing large opportunities for selling corn elsewhere in the ASEAN region. Otherwise, the organization warns, farmers may switch to growing higher-value crops. (UkrAgroConsult)

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: Do you see any fundamental reason for the Dry-Bulk Indices to be up well over one thousand points this week? I don’t either, but I guess we should remember not to fight the market too hard as it can run right over you. I’m still leery of the justification and staying power for this type of rally late in the year. Vessel owners: this is a gift that you had better take advantage of. Curiously, however, the past six-month rise in Dry-Bulk grain cargo rates has not significantly benefited the containerized grain export business. With the exception of the non-GMO soybean trade, container grain sellers tell me that their business is down year-over-year, especially to major buyers like China, Indonesia and Taiwan. Is this just an issue of timing on the buyer’s part or is it something more? Hopefully it is just a change in timing. Container rates for grain export have not really moved up and shipping lines are asking sellers if they will have sufficient demand to fill empties in the JFM period. 

Another question has been: do we have enough bulk export capacity in the U.S.? With Lake Charles doing very little volume and Mississippi facilities ADM Paulina and ADM AMA closed for a period of about one year, I’d have to say we certainly have an excess of grain export capacity in the USA. Vessel lineups in the U.S. Gulf and PNW are not robust. We need business – or we will just carry more grain out another year.

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
Freight Chart 1
Freight Chart 2
Freight Chart 3

10. Interest Rates

Interest Rates