Market Perspectives December 7, 2017

1. Chicago Board of Trade Market News

Week in Review

Outlook: March corn futures are lodged in a pattern of lower, range bound trading and are hanging only a few cents above life-of-contract lows. The soy complex’s excitement over dryness in Argentina has failed to impress – or even interest – corn bulls, leaving few factors left to move prices higher. U.S. exports are in competition with South America, though rising freight rates may give exporters additional opportunities. 

Argentina’s rainfall has been below normal since November. Some isolated showers have been received in recent days, but these failed to offer significant coverage. The dryness is more threatening to the Argentine soybean crop, but an extended dry pattern could impact the country’s corn planting too. Argentine corn basis is rising slowly and steadily – as are freight rates – which is giving U.S. corn more competitive opportunities. On paper at least, U.S. corn is the cheapest worldwide, which should bring more business to American exporters. The corn market, however, will wait to see evidence of additional shipments before moving prices higher. 

USDA’s Export Sales report today featured 34.5 million bushels of net sales and 23.3 million bushels of shipments. Despite sales being higher than needed this week, the report was bearish corn futures as the market needs to see exports improving, not just sales. Exports marketing-year-to-date are down 38 percent from last year, and behind the pace needed to meet USDA’s projections. Typically, exports pick up this time of year as competition from South America wanes, but Brazil and Argentina have remained competitive longer into the fall this year. With weather trouble in Argentina, it’s possible that U.S. exports may pick up. 

From a technical perspective, March corn is range bound and finding support near $3.50 from large commercial buying at low prices. The moving averages point to continued lower prices but $3.50 will form key psychological support. Funds hold a large short position in corn futures already and are likely unwilling to push the market to new lows with the weather in Argentina. Moreover, any short-covering by noncommercial traders could spark a mild rally in the market. However, there is currently no catalyst at work that would prompt such buying. Slow, choppy, range-bound trading is expected for the next several weeks.

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 dry conditions across the western U.S., Plains, and lower Midwest while liquid precipitation accumulations of <1.5 inches are expected in the upper Midwest, New England, eastern portions of the Mid-Atlantic, Southeast, and Gulf Coast. Some slightly higher accumulation (2-to-3 inches) are expected across the coastal plains of the Carolinas. The CPC 6- to 10-day outlook calls for a high probability of above-normal temperatures across the western half of the conterminous U.S. while below normal temperatures are expected in the eastern third of the U.S. In terms of precipitation, below normal precipitation is expected across most of the West, southern Plains, South, Southeast, lower Midwest, and Mid-Atlantic while there is a high probability of above normal precipitation for the upper Midwest and western portions of New England. 

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 876,400 MT for 2017/2018 were up 46 percent from the previous week, but down 30 percent from the prior 4-week average. Increases were reported for Colombia (173,700 MT, including 109,400 MT switched from unknown destinations and decreases 5,900 MT), Mexico (150,300 MT, including 26,000 MT switched from unknown destinations and decreases of 5,100 MT), unknown destinations (127,100 MT), Peru (124,800 MT, including decreases of 14,000 MT), and Japan (117,800 MT, including 50,000 MT switched from unknown destinations and decreases of 100 MT). Exports of 592,300 MT were primarily to Mexico (203,600 MT), Colombia (170,600 MT), Japan (105,000 MT), Panama (38,900 MT), and Peru (29,800 MT). 

Optional Origin Sales: For 2017/2018, new optional origin sales of 172,000 MT were reported for South Korea (68,000 MT) and unknown destinations (104,000 MT). The current optional origin outstanding balance is 429,500 MT for South Korea (206,000 MT) and unknown destinations (223,500 MT). 

Barley: No net sales were reported for the week. Exports of 400 MT were reported to Japan (300 MT) and South Korea (100 MT). 

Sorghum: Net sales of 406,600 MT for 2017/2018--marketing-year high--were up 24 percent from the previous week and 49 percent from the prior 4-week average. Increases were reported for China (472,500 MT, including 132,000 MT switched from unknown destinations and decreases of 8,300 MT). Reductions were reported for unknown destinations (66,000 MT). Exports of 257,600 MT--a marketing-year high--were up 19 percent from the previous week and up noticeably from the prior 4-week average. The destinations were China (255,700 MT) and Mexico (1,900 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: DDGS prices are higher again this week, buoyed by international demand and rising soybean meal prices. FOB U.S. Gulf DDGS reached over $190/MT this week. DDGS rail-delivered to the PNW rose $5/MT this week to end at $216.50, while barge CIF NOLA prices moved higher by an equal amount. FOB NOLA DDGS are priced at 52 percent of FOB NOLA soybean meal and 120 percent of FOB NOLA corn. Both ratios are moving towards the high end of their normal range, which could either pressure DDGS prices or bring additional support to the corn and soybean meal markets. 

Domestically, DDGS FOB ethanol plants (averaging $132/MT) are valued at 40 percent of Kansas City soybean meal values and 119 percent of cash corn. Soybean meal prices have been rising quickly with the dry weather in Argentina, which is keeping DDGs competitive in feed rations. DDGS enjoy a per-protein unit cost advantage of $1.60 versus soybean meal, up from $1.47 last week as soybean meal prices rose faster than DDGS. 

Merchandisers are reporting that shipments to Vietnam are slowing as all Midwest loading points are too cold for the required fumigation. Prices for 40-foot containers to southeast Asia rose $6/MT on average this week, with prices for Shanghai, China and Taiwan increasing the most. The forward curve for DDGS to southeast Asia is relatively flat, meaning the market appears to be well-supplied but in balance with demand.

7. Country News

Australia: No agricultural products had been shipped out of Western Australia’s remote Ord Stage port since 2008, but now for the second year in a row a shipment of 11 KMT of corn is being exported to South Korea. The hope is to get it up to three shipments a year but at this juncture the area is only producing 15 KMT. (ABC Rural) 

Brazil: The grain agency Conab purchased 86 percent of the nearly one million tons of corn it tendered to buy. The agency purchases corn to prop up prices and then sells it back into the market when prices are higher. Other programs like PEP and Pepro subsidize corn freight or subsidize to even out price differences between regions. (Platts) 

China: Imported corn is 16 percent cheaper than domestically delivered product in Guangdong and the 700,000 tons of corn reported to have recently been purchased from the U.S. could signal more imports ahead. The U.S. and Ukraine compete for the market, and the spread between futures prices in China and Chicago indicate that traders do not think much of the quality of the surplus corn supply in China. (Reuters) 

Naomi Blohm of Stewart-Peterson says that China going from the current 20 percent of their automobile fleet using ethanol to the goal of 100 percent will require an additional billion bushels (25 MMT) of corn each year. Bohm also cites reports that 70 percent of China’s current corn stocks aren’t usable. (AgDay) 

Venezuela: Corn production has fallen by more than half over the past decade as government price controls have discouraged farmers from planting fields. Sorghum production has mostly disappeared. (Bloomberg)

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 rates held up pretty well this week with needed support from the Capesize market. Any real increase in Dry-Bulk market rates is going to have to be led by the Capesize market, and that is what is occurring. It still revolves around China’s import demand for raw materials. Given the stockpiling that is taking place in China, one has to question how much more import volumes can increase. The physical market is trying to follow the Baltic Indices, but is doing so reluctantly and starting to feel a bit toppy at week’s end. Since we are approaching the holiday period, I’m leaving most rates unchanged from last week’s levels.

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 Thailand.

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

10. Interest Rates

Interest Rates