Market Perspectives - October 24, 2014

1. Chicago Board of Trade Market News

Outlook: This section noted several weeks ago that extension of a trading range seemed the most probable scenario for corn contract prices through year-end, and that appears to be what is happening. Contract prices are now presumably entering the upper quartile of that range which will be extended into the future through year-end.

The fact that the rate of U.S. corn being inspected for export is rather active even though U.S. prices are holding a premium to competitors seems to be confusing for some market participants. However, the total equation cannot be factored without considering logistical costs. Global buyers run the total costs and seem to be finding that the U.S. is competitive for present needs.

In relation to future feed grain needs, the U.S. may also be more competitive than it seems because basis in some regions has not kept up with the recent rebound in nearby corn futures contracts. Conditions may improve as commercial buyers seek to encourage additional selling by U.S. producers so that they can extend future coverage for international clients. Increasing export sales is often a catalyst that fuels additional export sales.

Many U.S. producers seem willing to patiently wait for some improvement in price, and are also seeking to reduce costs by allowing corn to dry as much as possible in the field. This season’s slow harvest rate cannot be entirely attributed to rainy conditions, but rather low prices. As a matter of fact, most producers are very aware that cool and damp weather can increase the prospect of negative issues such as fungus. The resulting outlook is that the U.S. corn harvest this season will continue at a slower-than-normal pace as producers intently monitor conditions.  

3. U.S. Weather/Crop Progress

U.S. Drought Monitor Weather Forecast: During the October 24-27 time period, precipitation is expected in the Pacific Northwest, southern Florida and New England. Warmer-than-normal temperatures are expected throughout most of the interior of the nation.

For the period of October 28- November 1, the odds favor normal to above-normal temperatures across country. Above-normal precipitation is likely from the Pacific Northwest into the northern Great Plains and Upper Midwest, as well as in southern Florida. Below-normal precipitation is expected in a wide area from the Southwest through the Southern Plains and Southeast and up through the Lower Midwest and into the Mid-Atlantic and New England. 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 of 1,031,200 MT for 2014/15 were down 46 percent from the previous week and 1 percent from the prior four-week average. Increases were reported for unknown destinations (576,200 MT), Japan (167,300 MT, including 63,700 MT switched from unknown destinations), Jamaica (86,400 MT), Peru (43,100 MT, including 30,000 MT switched from unknown destinations), Colombia (42,400 MT, including 12,000 MT switched from unknown destinations) and the Dominican Republic (23,000 MT). Decreases were reported for Vietnam (3,900 MT) and Guatemala (3,600 MT). Exports of 676,700 MT were primarily to Mexico (194,400 MT), Colombia (111,100 MT), Japan (106,900 MT), Venezuela (64,000 MT) and Peru (50,500 MT).

Barley: Net sales of 300 MT for 2014/15 were reported for Taiwan. Exports of 100 MT were reported to Taiwan. 

Sorghum: Net sales of 234,600 MT were for China (179,700 MT), unknown destinations (52,000 MT) and Japan (2,900 MT, including 3,000 MT switched from unknown destinations and decreases of 100 MT). Exports of 251,900 MT--a marketing-year high--were reported to China (239,800 MT) and Japan (12,100 MT)

6. Distillers Dried Grains with Solubles (DDGS)


Both domestic and foreign DDGS prices increased by approximately the same amount this past week. On average, November increased about $9/MT. The size of increases then declined into the future with December prices for both domestic and international averaging up about $7/MT and January up about $4/MT. 

A number of Asian buyers are testing the market and bidding prices that are about $20 under offers. They recently had some success as DDGS merchandisers with the largest excess supplies were forced to temporarily undercut the competition. However, more and more domestic DDGS buyers are making slightly higher offers than their foreign counterparts. This is one reason for the increasingly similar price changes for both domestic and foreign buyers.  A second reason for the similar changes in price seems to be that burdensome stock levels are slowly being reduced. However, there is still abundant DDGS inventory that needs to be moved.  

DDGS merchandisers seem intent on offering the best prices to their better clients. Domestic buyers seem to be aware of the conditions and make payments on time, accepting product without complaint. However, an advantage that foreign buyers have is that they purchase in larger volumes than some of the local domestic buyers who purchase hand-to-mouth. As a result, Thai buyers were successful this week in purchasing about 4,000MT to Lat Krabang/Laem Chabang in the price range of $180-182. As well, a major Taiwanese feed mill won a tender at $170 for Kaohsiung. Buyers from Korea attempted to purchase even lower, but without success. Even though plenty of opportunities exist, domestic buyers will outbid their Asian counterparts at a certain level. 


Ethanol Comments: Two positive developments took place this week in the U.S. ethanol market. First, there was a substantial one week reduction in total ethanol stocks by 2.3 percent as stocks declined from 18.4 million barrels down to 17.9 million barrels for the week the ending October 17. This sizable reduction seems to indicate that exports have picked back up because it occurred even as the weekly rate of production increased from a level of 885,000 barrels per day (bpd) up to 896,000 bpd.

The second favorable development is that there was a rather sizable rebound in the differential between the cost of corn and the return for the co-products of ethanol and DDGS. The regional differentials for the week ending Friday, October 24, 2014 are as follows:

  • Illinois differential is $2.66 per bushel in comparison to $2.29 the prior week and $3.26 a year ago.
  • Iowa differential is $2.44 per bushel in comparison to $1.96 the prior week and $2.92 a year ago.
  • Nebraska differential is $2.57 per bushel in comparison to $2.01 the prior week and $2.71 a year ago.
  • South Dakota differential is $2.52 per bushel in comparison to $2.12 the prior week and $3.13 a year ago.

7. Country News

Argentina: Argentina’s Economic Ministry has approved the export of an additional 500,000 MT of corn from the 2013/14 season, according to Reuters.

Brazil: Brazil’s main grain producing regions are expected to get widespread rains between October 28 and November 6, which would end several months of damaging dry weather, reports Reuters.

China: The Chinese government will likely stay the course and stockpile large amounts of corn for a third year in a row, according to Reuters. The government will probably add some 40 MMT of corn following the country’s bumper harvest.

Kenya: The Cereal Growers Association has announced that another outbreak of Maize Lethal Necrosis has the potential to reduce Kenyan corn production by 30 percent as farmers are increasingly switching to other crops, according to Bloomberg News. Up to 70 percent of Kenyan corn farmers could be impacted by the virus. Kenya produced 2.8 MMT of corn through the end of the marketing year in June 2014, while consumption is expected to increase by 2.7 percent to 3.75 MMT.

South Africa: Yellow corn for December delivery fell this week to $179.29/MT, reports Bloomberg News.

Vietnam: Vietnamese corn millers have canceled import shipments following a large drop in global grain prices, according to Reuters. Vietnamese buyers are reneging on some 200,000 MT of corn and there is a fear that these cancellations could drive corn prices that have dropped by 25-35 percent in the past three months even lower. Vietnam has doubled its corn imports in the past five years to total 2.2 MMT in 2013/14. Millers are currently being offered Brazilian corn at $200/MT for Panamax cargoes, which is a steep reduction from the $275/MT many agreed to pay three months ago. U.S. Gulf corn is currently being offered at $184.96/MT for October, which is down from $224/MT in June following a record harvest of 367.68 MMT this year. 

8. Ocean Freight Markets and Spread

9. Ocean Freight Comments

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting:The Panamax freight sector continued to be firm this week on the Baltic Freight Index, but we did not see the physical markets get as excited as the folks playing the Baltic indices. The Capsize iron ore vessel market from Western Australia to China did pop up $1.00-$1.50/MT on higher volumes of business. It will likely take the Panamax sector a bit longer to catch up with the trend.

One would think, however, that the uptick in U.S. soybean exports to China could lead to better (higher) rates from the U.S. Gulf and PNW.

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 2013 annual totals versus year-to-date 2014 container shipments to China.

10. Interest Rates