1. Chicago Board of Trade Market News
Outlook: This section noted last week that the December corn contract appeared to be entering the upper quartile of a trading range, and that seems to be happening. Multiple traders seemed to perceive a short-term selling opportunity as the December contract traded above $3.76 per bushel.
The recent increase in corn contracts to current price levels could be sufficient to cause a quick increase in the harvest pace; if only cash basis would follow suit. Otherwise, the lackluster harvest pace is likely to continue. A slower harvest pace of a bumper crop increases the threat potential for a sudden adverse weather event, such as an unexpected onslaught of snow, ice, or mud. If such conditions were to develop, then there could be some more upside in corn contracts. Additional upside could widen the trading range that is anticipated to extend itself from the present time period through January.
The short-term outlook is that a rectangular trading range will extend itself into the future, with highs of approximately $3.80 per bushel. However, the development of a weather threat in the U.S. Corn Belt, supported by better than expected demand, could allow the December contract to rally a dollar from it October 1 low of $3.1825 per bushel. Nearby corn contract prices could then evolve into a narrowing funnel pattern that extends through January. One way or another, a rather horizontal trading range is expected to extend itself into 2015. (Knowing the probability of which is more likely is difficult to estimate because weather forecasts are not much good beyond a week out.) Volatility is then anticipated to increase in February as market discussion intensifies regarding the topic of planting intentions.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: The outlook over the next weekshows a continuing chance of precipitation from the southern plains up into the Ohio River Valley, with amounts generally projected to be less than two inches. An active pattern along the coast of the Pacific Northwest ushers in more precipitation during the next seven days. Some areas along the Washington coast could receive up to five inches of rain for the period. Dry conditions dominate the southwest into the northern Plains. Temperatures during this time are forecasted to be above normal for the central and northern plains as well as the northern Rocky Mountains. Cooler than normal temperatures are expected over the eastern half of the country as well as along the west coast into the Great Basin.
The 10 day outlook shows a trend of above-normal temperature chances continuing over most of the United States. The highest probabilities of above-normal temperatures will be over the northern tier of the country. The greatest probabilities of above-normal precipitation will be from the southern plains into the Midwest as well as the Pacific Northwest, which is a continuation of what is expected in the seven day outlook. The probability of dry conditions is greatest over the central and northern Plains, Southwest, and into California.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 489,800 MT for 2014/15 were down 53 percent from the previous week and 55 percent from the prior four-week average. Increases were reported for South Korea (134,700 MT, including 130,000 MT switched from unknown destinations), Peru (88,700 MT, including 40,000 MT switched from unknown destinations and 35,000 MT switched from Colombia), Mexico (82,300 MT), Japan (77,900 MT, including 28,600 MT switched from unknown destinations and decreases of 2,300 MT), Colombia (74,000 MT, including 25,000 MT switched from unknown destinations and decreases of 12,000 MT) and Costa Rica (56,500 MT). Decreases were reported for unknown destinations (90,300 MT), Jamaica (64,300 MT), the French West Indies (7,000 MT), the Dominican Republic (4,000 MT) and Nicaragua (2,700 MT). Net Sales of 44,500 MT for 2015/2016 were reported for Canada (25,000 MT), Mexico (10,000 MT) and Nicaragua (9,500 MT). Exports of 829,500 MT were primarily to Mexico (166,900 MT), South Korea (135,100 MT), Japan (114,000 MT), Colombia (102,700 MT), Peru (85,100 MT), Canada (45,600 MT) and Guatemala (34,800 MT).
Barley: Net sales reductions of 100 MT for 2014/15 resulted as increases for Taiwan (100 MT), were more than offset by decreases for the Philippines (200 MT). There were no exports reported during the week.
Sorghum: Net sales of 114,100 MT for 2014/15 resulted as increases for China (169,100 MT, including 55,000 MT switched from unknown destinations and decreases of 600 MT), were partially offset by decreases for unknown destinations (55,000 MT). Exports of 157,300 MT were reported to China.
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: This is the second week in a row of uniform DDGS price increases for domestic and international buyers, with each increasing on average about $12/MT. Merchandisers report that it is primarily domestic demand that is driving the push higher in DDGS values. The domestic buyers are increasing DDGS in their feed ratios as a substitute for expensive soymeal. The nutritionists of domestic end-users are striving to obtain the best costs and an acceptable level of amino acids. DDGS can accomplish this when mixed in the correct proportions. Note: many DDGS merchandisers may be able to forward useful materials about the feeding of DDGS to end-users.
One merchandiser reported that he is presently focusing all of his attention on the domestic market rather than on seeking out Asian demand. However, that perspective is not consistent, as a different merchandiser seemed optimistic that the spread will soon narrow between domestic and Asian bids and the rate of buying volume increases.
Buying volume for feeds normally increases as it becomes evident that a seasonal low has been established. Market participants seem to increasingly be in agreement that the price for corn futures on October 1 is the low for the current 2014/15 season. Consequently, the rate of domestic buying has picked up. However, foreign buyers of DDGS are still finding some of the best deals. For example, buyers from Thailand were able to secure 12,000 MT of DDGS earlier this week at $190-194/MT. That low of a price level was hard to find by the end of this week, but Korea and Vietnamese buyers are actively making offers as they seek out opportunities.
Ethanol Comments: The average daily rate of U.S. ethanol production increased this past week to 937,000 barrels per day (bpd). That is an increase above the prior week’s production level of 896,000 bpd, but that increase is not a factor of concern for the following reasons: It is normal for ethanol production to increase during the corn harvest. The amount of ethanol production during the same week a year ago was 911,000 bpd. The significance of this fact is that there is only a slight increase in this season’s ethanol production during the harvest even though the percentage decline in corn contract prices is sizably larger this season. Additionally promising this season is the fact that there was a substantial decline in total U.S. ethanol stocks from 17.9 million barrels the prior week to 17 million barrels for the week ending October 24. The result is that present stocks levels have fallen back to just 13.9 percent of the year ago level. This process of decline in stocks has continued for several weeks and seems attributable to increased exports.
There was only a slight decrease in the differential between the cost of corn and the return for the co-products of ethanol and DDGS during this past week. It is also noteworthy that the differential is close to year-ago levels. The regional differentials for week ending Friday, October 31, 2014 are as follows:
- Illinois differential is $2.55 per bushel in comparison to $2.66 the prior week and $3.16 a year ago.
- Iowa differential is $2.41 per bushel in comparison to $2.44 the prior week and $2.68 a year ago.
- Nebraska differential is $2.56 per bushel in comparison to $2.57 the prior week and $2.55 a year ago.
South Dakota differential is $2.51 per bushel in comparison to $2.52 the prior week and $2.88 a year ago.
7. Country News
Argentina: A mild El Nino is expected to provide the Pampas grain belt with ample rainfall followed by sunny weather, according to Reuters.
Canada: The Ministry of Agriculture will likely lift requirements for railways to move minimum crop volumes provided that a sudden pile up of grain does not occur and that the railways prove themselves capable of the task at hand, reports Reuters.
China: The Chinese government is set to further its control on the import of grain in order to cut down on smuggling and other illegal activities to prevent oversupply, according to Reuters. China is currently experiencing a grain storage shortage as the country maintains record stockpiles in the face of another good harvest.
South Africa: South Africa has cut its estimate for corn planting in 2015 by 3.3 percent reports Bloomberg News. Farmers could plant 2.6 million hectares of corn, which is down from the September forecast of 2.69 million hectares.
Vietnam: Vietnam’s Ministry of Agriculture has approved four strains of Monsanto GM corn for use by the country’s farmers, according to Bloomberg News. This move comes after an 80 percent increase in pork consumption over the past decade and corn imports that have quadrupled in three years. Vietnam is projected to consume 33 kg of pork per person by 2020. In comparison China is projected to consume 32.6 kg per person and the EU 31.3 kg by 2020. Vietnam is set to import 4.5 MMT of corn this year, which is more than twice the 2.19 MMT it imported in 2013. Domestic corn production has only increased by 1.4 percent his year to total 5.27 MMT.
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: It was another week of up markets. Looking back, the Baltic Dry-Bulk Indices have, for the most part, been moving up for the last 16 days. This looks impressive and has been fueled mostly by improved iron ore and coal business as well as increased grain exports from the U.S.
Physical rates in the grain trade are slightly higher but have not mirrored the percentage increases of the Baltic Exchange. We’ll have to wait to see if this is just a matter of lag-time or a case of some overly excited (read overly optimistic) players in the Baltic Exchange. Atlantic and Pacific Dry-Bulk indices are now back up to levels not seen since late March 2014. It is curious to note that Physical Panamax rates from the U.S. and South America to Asia in late March were $3.00-$4.00/MT higher than they are today at nearly the same index levels. Considerably cheaper bunker fuel rates must have something to do with that.
The charts below represent January-December 2013 annual totals versus year-to-date 2014 container shipments to Hong Kong.