1. Chicago Board of Trade Market News
Outlook: Activity in March corn this week featured the same slow, rangebound trading up until Wednesday. Wednesday’s trading featured a 5-cent leap higher which equaled an upside breakout from March corn’s months-long trading range. Buying in wheat and the soy complex motivated corn’s move higher, along with deteriorating prospects for the South African and Argentine corn crops.
The USDA agricultural attaché to Argentina said Wednesday the country’s corn crop could fall to 40 MMT, a full 2 MMT below the WASDE’s official forecast. That news, combined with some from South Africa indicating the country may reduce export volumes this year, was enough to spark some mild short-covering in CBOT corn. Neither adjustment to the world corn balance sheet will end the over-supply situation, but with funds heavily short corn it was just enough to spark some buying interest.
The 2018 government shutdown only lasted one business day, but it was enough to delay the USDA’s Export Sales report until Friday. Traders’ expectations are for 0.9-1.25 MMT of old-crop corn to be counted as sold in this week’s reports. This week’s export inspections report featured 668,000 MT of corn exported along with 220 MT of sorghum. Exports for both crops are below last year’s volume but 36 percent and 25 percent, respectively. Exporters are hopeful the dollar’s recent fall will further enhance U.S. export potential.
From a technical perspective, March corn has been turned back by its 100-day moving average and, without much fundamental news out there, will likely trade lower. Additional selling pressure may come from the fact the new-crop December contract briefly broke above its 100-day moving average but could not sustain a close above this point. This will likely set the stage for lower price action in the near-term.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: In the 2 days since the Tuesday morning cutoff time of this week’s USDM, one storm system moved across the Northeast and exited the CONUS while another Pacific low and frontal system was moving into the Northwest. The Pacific system will dry out as it crosses the Rockies, then pick up Gulf of Mexico moisture when it moves across the eastern half of the country. For January 23-30, 5-plus inches of precipitation is forecast for the coastal regions from northern California to Washington and up to 5 inches for northern Idaho, with lesser amounts from central California to Montana. When the system crosses the Plains, another region of precipitation will develop with amounts ranging from half an inch to locally over an inch along a line from eastern Texas to the eastern Great Lakes, then eastward from that line to the East Coast. Little to no precipitation is forecast for southern California and the Southwest, much of the Plains, and most of the Upper Midwest. Temperatures are predicted to be above normal across most of the CONUS.
For January 30-February 7, precipitation is expected to be below normal for much of the West to southern Plains, but above normal from Montana to the Great Lakes and from the Mississippi Valley to the East Coast. Odds favor above-normal temperatures across the Southwest and along the East Coast, and below-normal temperatures from Washington State to the northern Plains. Projections suggest that the central Plains will begin the period warmer than normal, but that colder-than-normal air masses will plunge south and east into the southern Plains and Great Lakes by the end of the period.
Follow this link to view current U.S. and international weather patterns and future outlook: Weather and Crop Bulletin.
4. U.S. Export Statistics
Note: Due to the Monday, January 22 government shutdown, weekly U.S. export sales will be published on Friday, January 26. Updated U.S. export sales will be next published in the February 1, 2018 edition of Market Perspectives.
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS prices are predominantly higher this week with Chicago prices steady, CIF NOLA Barge values up $2.25/MT and FOB Gulf prices up as well. Ethanol production was steady this week, leaving near-term supply levels essentially unchanged. FOB ethanol plant DDGS prices are 125 percent of cash corn and 45 percent of Kansas City soybean meal, with the later ratio falling 3 percent from last week as soybean meal values rallied. DDGS, on a per-protein unit basis, are $0.98 less expensive than soybean meal this week, and the 43-cent improvement in that metric (to favor DDGS) should pull more of the ethanol co-product into domestic feed rations.
Merchandisers are reporting prices in Savannah, GA are firm. Other export points are reporting international buyers are reluctant to chase prices higher, resulting in slow trade so far this week. Prices for 40-foot containers for Southeast Asia were $3/MT higher this week at $234.
7. Country News
Algeria: The value-added tax has been removed from DDGS and CGF imports during 2018. Algeria is the second largest corn market in North Africa and its poultry and dairy production is expanding. (Ethanol Magazine)
Brazil: With sugarcane crush at a ten year low in January, corn use has exceeded sugarcane as the feedstock for ethanol production. Brazil is expanding the number of ethanol plants that can use either feedstock, as well as building corn-only ethanol plants. (Agrimoney)
China: Pig feed demand will keep corn prices high in 2018. In addition to more feed use, industrial use of corn will increase as 20 MMT of wet milling capacity comes on line in 2018. The market impact from additional ethanol production capacity will hit in 2019. (Rabobank)
Nepal: The Ministry of Agricultural Development reports that corn production will rise nearly 10 percent this year to an all-time high of 2.55 MMT due to growers adopting commercial farming practices. (World-Grain)
Zimbabwe: The Grain Millers’ Association of Zimbabwe reports that despite recent dry conditions there are sufficient grain reserves on hand to get the country through the next farming season. Association Chairman Tafadzwa Musarara credits the supply abundance to the Targeted Command Agriculture scheme, which requires farmers with a minimum of 200 hectares located near water to produce at least 1 KMT of maize per year. (World-Grain)
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: If you are following this report closely and or watching any of the Dry-Bulk freight charts, you will notice that bulk freight has been volatile over the past few months. The market is moving up and down like the tide. However, the overall long-term direction has been to the up side. So, the message here is to pick your moment to buy and not be too greedy. This week had buying support from those covering needs prior to the Lunar (Chinese) New Year. This is common during this period each year. The next issue for the freight markets is, what kind of cargo interest develops after the Lunar New Year Holiday? I would expect to see another short period of soft demand before we trend back up in Q2-Q3 of 2018. So, be careful in picking your entry point.
The charts below represent 2017 annual totals versus 2016 annual totals for container shipments to Japan.