Market Perspectives August 16, 2013

1. Chicago Board of Trade Market News

Outlook: Actual field survey analysis caused USDA to lower its estimate for the national average U.S. corn yield by 2.1 bushels per acre to 154.4 in the August 12 reports. This was below the July yield estimate of 156.5 bushels per acre and substantially below the average of commodity analysts’ estimates of 157.7 bushels per acre. The possibility of a lower estimate was noted in this section last week, as USDA’s August estimates are obtained in a rigorous format.

USDA obtained its national corn yield estimate of 154.4 bushels per acre from numerous physical evaluations of fields and from surveys sent to 24,000 producers. Nevertheless, speculators with substantial short positions were disgruntled and they decided to still shove the December corn contract to new lows the day after USDA data was published. Their aggressive selling was met by more buyers who appreciated the opportunity to acquire corn futures below $4.50 per bushel. Some of the more experienced speculators who were selling seemed to recognize that the potential rewards of a further downside objective may not justify the risks. This worked to weaken the resolve of speculative sellers and allowed prices to bounce back for the next two days.

Speculators who are seeking to drive the December corn contract down to $4.00 per bushel may want to define whom they expect to offset their position in order to reach that objective. Producers are unlikely to be short hedging at $4.00 per bushel, particularly if the basis becomes negative. As well, there is a substantial amount of empty bin space and farmers recognize that pricing ratios and weather could substantially alter pricing dynamics next spring. End-users are unlikely to be chased out of their long positions because most are hedging for the long haul and locking in profitable positions. Even lower prices simply give buyers the opportunity to extend their hedges into more distant contract months in order to lock-in future profits. The near-term outlook is that speculators are offering livestock producers, ethanol facilities and international feed grain buyers an extended pricing opportunity.

2. CBOT Corn Futures

December Corn Futures

CBOT Table

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

U.S. Drought Monitor Weather Forecast: Over the period of August 16-19, there is an above-normal chance for precipitation in the Southeast and in areas of the High Plains. Temperatures are expected to be above-normal in the West, mostly centered on the Rockies, and below-normal in the Southern Plains and into the Southeast and Mid-Atlantic.

For the period of August 20-24, the odds favor above-normal temperatures throughout the entire West, across the northern tier of the country and into New England. Normal to below-normal temperatures are favored from the Central Plains, into the South and the Southeast. Above normal-precipitation is likely across most of the East Coast, through the Southeast, and into the Southern Plains. The Northern Plains and Northwest are likely to see below-normal precipitation. Follow this link to view current U.S. and international weather patterns and the future outlook: Weather and Crop Bulletin

4. U.S. Export Statistics

Corn: Net sales reductions of 59,100 MT for 2012/2013 resulted as increases for China (62,500 MT), Mexico (28,800 MT), Guatemala (26,000 MT, including 18,700 MT switched from unknown destinations), El Salvador (11,100 MT, including 10,200 MT switched from unknown destinations) and Taiwan (9,500 MT), were more than offset by decreases for Japan (103,100 MT) and unknown destinations (100,700 MT). Net sales of 836,100 MT for 2013/14 were primarily for unknown destinations (348,000 MT), Mexico (308,800 MT) and Japan (100,000 MT). Exports of 377,400 MT were down 12 percent from the previous week, but up 7 percent from the prior four-week average. The primary destinations were Japan (212,400 MT), Mexico (93,500 MT), Guatemala (20,200 MT), and Venezuela (20,000 MT). Optional Origin Sales: For 2012/13, outstanding optional origin sales total 65,000 MT, all South Korea. For 2013/2014, outstanding optional origin sales total 148,000 MT, and are for Japan (48,000 MT) and Mexico (100,000 MT).

Barley: There were no sales reported during the week. Exports of 1,100 MT were to Taiwan (900 MT) and South Korea (200MT)

Sorghum: Net sales of 10,600 MT for 2012/13 were reported for Mexico (8,800 MT) and Japan (1,700 MT). Net sales of 3,000 MT for 2013/14 were for China. Exports of 75,000 MT were reported to Mexico (55,100 MT), Japan (19,200 MT), and China (700 MT). Optional Origin Sales: For 2013/14, outstanding optional origin sales total 60,000 MT, all China.

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: The range of spot prices varied from a couple dollars higher to $5.00 lower due to the volatile futures market. Buyers are becoming increasingly enticed by the discount of this year’s DDGS prices in relation to year ago levels. One merchandiser reported that he sold 4,000 metric tons (MT) for Chicago truck values at $269/MT. A different merchandiser reported that he has some September sales for 2,000 MT to Shanghai/Qingdao at $339/MT and another 2,000 MT to Nansha at $343/MT. While those sales were for September, there seems to be plenty of interest from both existing and new clients for more distant pricing.

A substantial amount of the extended pricing inquiries are coming from Chinese buyers, with several looking to price and secure shipments out through April 2014. The logistics around these more distant shipments is becoming increasingly concerning due to tight container supplies, especially in the fourth quarter. A merchandiser who is particularly active in the Asian market noted that one freight forwarder warned him to be ready for container freight increases. He was told that $100/40’ has been proposed for the September rate; to add on an additional $100/40’ for October and then do so again for November. Such discussions may partly explain the recent activity by Chinese buyers and the market talk that seven bulk vessels of DDGS have been sold in the last seven weeks, all going to China.

Ethanol Comments: The preceding Outlook section notes the opportunity that lower corn prices are offering to ethanol producers to lock in profitable hedges, particularly if a production agreement can be arranged with the blender. The blender’s interest in such pricing arrangements may be enhanced by the fact that lower corn prices make corn-based ethanol increasingly cost competitive against sugar-based ethanol.

Constraining sugar-based ethanol imports through competition is desirable because U.S. gasoline consumption has leveled off, which makes the E10 blend wall more challenging. It is advantageous for corn based ethanol producers to maintain domestic market share and to be a competitive alternative in export markets. Thus, the setback in corn prices has improved those marketing prospects. Note that USDA launched a program to buy domestic sugar under the Feedstock Flexibility Program (FFP), more commonly known as the sugar-for-ethanol program.

Ethanol imports declined last week to an average of 36,000 barrels per day (bpd), which is about a 36 percent decline from the prior-week’s average ethanol imports of 56,000 bpd. Ethanol production increased slightly to 857,000 bpd, which stands in comparison to the prior week’s production of 853,000 bpd. That production increase was more than offset by a moderate decline in total U.S. ethanol stocks to 16.4 million barrels, which is down from 16.7 million barrels the prior week, and more than 10 percent below the year ago level of 18.4 million barrels.

In relation to year ago margins, they are most favorable in regions around the states of Illinois and Iowa and weakest in Nebraska, which is implied in the following differentials between corn and the value of co-products values:
• Illinois differential remained about the same at $2.40 per bushel, compared to $2.41 the prior week and above $1.61 for this same week a year ago.
• Iowa differential decreased to $2.28 per bushel, which is down from $2.37 the prior week but above $1.58 for this same week a year ago.
• Nebraska differential remained about the same at $2.02 per bushel, compared to $2.01 the prior week and just above $1.98 for this same week a year ago.
• South Dakota differential increased to $2.57 per bushel, which is up from $2.47 the prior week and above $1.90 for this same week a year ago.

7. Country News

Argentina: The Buenos Aires Grains Exchange announced that the world’s third largest corn exporter is set to plant 3.56 million hectares of corn in the 2013/14 crop year, which is down from the 3.68 million hectares sown in 2012/13, reports Reuters. The 2012/13 corn crop harvest has nearly finished and the government anticipated the total amount of grains to be around 32.1 MMT.

China: An official Chinese think tank announced that the country will import 5.5 MMT of corn in 2013/14, which is a 2.8 MMT increase over the 2012/13 year, according to Reuters. China has so far purchased 4 MMT of U.S. sourced corn for 2013/14, and U.S. corn currently commands prices that are about $98/MT less than its Chinese counterpart.

India: Indian corn exports could fall by as much as 40 percent in the coming marketing year as foreign buyers are increasingly turning to cheaper and higher quality South American sourced grain following severe rain damage to India’s crop, according to Reuters. Heavy rains afflicted the corn harvest across the country’s eastern corn belt in May, which encouraged buyers to seek grain elsewhere. This setback comes at a particularly bad time for India. Global corn supplies are set to rebound in 2013/14, and grain importers are spoiled for choice with cheaper grain. Total corn exports could drop as low as 3 MMT in 2013/14, which is down from the 4.8 MMT exported in 2012/13.

South Africa: Yellow corn futures have risen for two days on the heels of increasing U.S. prices, reports Bloomberg News. Yellow corn for September delivery gained by 0.4 percent to $218.03/MT, while white corn for December delivery rose by 0.5 percent to $233/MT.

Ukraine: The Ministry of Agriculture has increased its August grain export forecast to now total more than 2 MMT, according to Reuters. The increase comes as a reaction to higher-than-expected demand for Ukrainian grain. Previously, Ukraine expected to export 1.5-1.7 MMT of grain, and it has already exported some 1.1 MMT so far in August. Ukraine has exported 2.3 MMT of grain since the current season began on July 1, and this total includes some 953,000 MT of barley and 468,000 MT of corn. The Agricultural Ministry predicts that this year’s grain harvest could reach a record high of 57.1 MMT, which is a significant improvement over 2012’s 46.2 MMT.

United Kingdom: The planting of spring barley in England totaled some 564,000 hectares, which is nearly twice as much as plantings last year, according to Bloomberg News. Winter barley planting on the other hand fell by 22 percent to 257,000 hectares. The winter barley harvest is about 75 percent complete and the yields so far are higher than the five-year average. Total 2013 barley planting stands at 821,000 hectares, which is a 32 percent improvement over 2012

8. Ocean Freight Markets and Spread

9. Ocean Freight Comments


Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: World ocean freight markets were a little more interesting this week as we saw some freight spread relationships change. The Capesize market started and showed some divergence in relationship to the Panamax market, and the Pacific Panamax market strengthened while the Gulf-Atlantic continued to soften. The Capesize market has enjoyed good iron ore demand from the Chinese as well as some logistical delays. However, this is the market with the biggest oversupply of vessels relative to worldwide demand, so it is difficult to treat this as a trend just yet. The balance of surplus Panamax vessels in the Pacific has temporarily shifted, but the pressure still remains in the U.S. Gulf-Atlantic market. It would seem logical to increase Panamax grain rates in the Pacific this week, but there has been no visible uptick in the physical rates verses the Baltic Index. In fact, there have possibly been some more aggressive (lower) fixtures than the rates below indicate. Let’s see what next week brings.


Below is a recent history of freight values for Capesize vessels of iron ore from Western Australia to China:

The charts below represent January-December 2011 and January-December 2012 annual totals versus January-June 2013 year-to-date container shipments for Malaysia.

10. Interest Rates