Market Perspectives - April 10, 2015

1. Chicago Board of Trade Market News

Week in Review

Outlook: USDA published their April WASDE report this week and it held no significant price influencing surprises. In summary, the estimate for U.S. corn ending stocks increased from 1.777 to 1.827 billion bushels for the present 2014/15 season. That ending stocks level remains well under 2 billion bushels and cash corn prices are presently below $4.00 per bushel through calendar year 2015. The onus is not on bullish traders to prove their case before feed grain prices can rally higher when the May corn contract is trading around $3.75 per bushel and cash corn is trading 20 cents lower. Rather, the seemingly far more tentative assumption is that future circumstances will weigh on and further depress prices from present levels.

USDA data implied that Chinese demand for U.S. sorghum will remain strong throughout the present season. The forecast for China’s feed use of sorghum was increased 1.5 million metric tons. This increased export demand was partly offset by decreased sorghum use. USDA is also expecting that an early sorghum harvest in Texas will supplement this season’s strong demand and maintain an acceptable ending stocks level.

The estimate for Mexican demand of U.S. corn was reduced as it appears that favorable growing conditions will allow for an abundant winter crop. However, that reduced Mexican demand was offset by higher imports from other destinations such as Indonesia, China, Iran, Algeria, Peru and Columbia. Such growing global demand necessitates the United States produce another bumper crop in order for feed grain prices to remain capped a present levels.


3. U.S. Weather/Crop Progress

U.S. Drought Monitor Weather Forecast: Precipitation is expected to migrate from the Gulf Coast into the Midwest in the coming days. The Pacific Northwest is likely to see precipitation each day. The rest of the country is expected to remain dry. Warmer-than-normal temperatures are expected over most of the contiguous U.S. during the same time. The Pacific Northwest is the only exception to this with below-normal temperatures expected throughout the period.

The NWS 10-day outlooks call for normal to warm conditions over the U.S. with the exception of the northern West, which should experience below-normal temperatures. Precipitation during that timeframe is expected to be normal to above-normal across the country with the exception of the far West. 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

Export Sales
US Export inspections
USDA Inspections

Corn: Corn: Net sales of 639,600 MT for delivery in 2014/15 were up 57 percent from the previous week and 45 percent from the prior four-week average. Increases were reported for Taiwan (209,000 MT), Mexico (200,300 MT), Japan (197,100 MT, including 155,700 MT switched from unknown destinations and decreases of 19,800 MT), South Korea (131,400 MT, including 64,700 MT switched from unknown destinations and decreases of 1,200 MT), Colombia (54,400 MT, including 51,400 MT switched from unknown destinations and decreases of 8,200 MT) and Cuba (25,000 MT). Decreases were reported for unknown destinations (184,500 MT) and Barbados (58,800 MT). Net sales of 62,900 MT for 2015/16 were reported for unknown destinations (36,200 MT), Guatemala (17,500 MT) and Japan (9,100 MT). Exports of 1,171,100 MT were up 71 percent from the previous week and 30 percent from the prior four-week average. The primary destinations were Mexico (289,600 MT), Japan (265,400 MT), South Korea (243,300 MT), Taiwan (137,000 MT), Iran (72,600 MT), Colombia (71,600 MT) and Costa Rica (44,100 MT).Optional Origin Sales: For 2014/15, outstanding optional origin sales total 68,000 MT, all South Korea. 

Barley: Net sales of 100 MT for 2014/15 were reported for Taiwan. Exports of 300 MT were reported to South Korea (100 MT) and Taiwan (100 MT). 

Sorghum: Net sales of 47,000 MT for 2014/15 resulted as increases for China (105,200 MT, including 58,000 MT switched from unknown destinations and decreases of 10,400 MT), were partially offset by decreases for unknown destinations (58,000 MT) and Canada (300 MT). Net sales of 217,000 MT for 2015/16 were reported for unknown destinations (109,000 MT) and China (108,000 MT). Exports of 182,800 MT were up 6 percent from the previous week, but down 10 percent from the prior four-week average. The destination was China. 

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: Strong interest in bulk DDGS exports is one reason that rates to the Gulf of Mexico were unchanged this past week while declining from $2-3/MT domestically and down approximately $5/MT in the containerized export market. The fact that an additional discount of about $4/MT is being offered on containerized rates for the next two months out into the future indicates that DDGS merchandisers are willing to incentivize pricing agreements. That same pricing advantage is not being offered to domestic buyers who primarily purchase on an as needed basis in the spot market.

DDGS merchandisers seem to recognize that the May corn contract at current prices around $3.75 per bushel probably has limited downside because that means cash corn is probably trading around $3.55 per bushel. U.S. farmers are reluctant to sell at any lower price level as they will be losing money. Consequently, many DDGS merchandisers recognize that the market is presently offering them an opportunity to extend their corn purchases at favorable price levels. It is much easier for the merchandisers to justify corn purchases into the future and then offer favorable pricing to preferred customers when they can show their own senior management that there is a written sales agreement on future DDGS production.

Ethanol Comments: Large crude oil stocks have garnered a great deal of attention lately, but ethanol prices are primarily determined by price; and the price crude oil has been slowly trending higher in a trading range since the middle of March. The present U.S. ethanol stocks of 20.5 billion barrels are unchanged from the prior week, but they are not growing.  As well, the average daily production rate of 936,000 barrels per day (bpd) for week ending April 3, 2015 declined from the prior-week’s rate of 952,000 bpd.

Controlled ethanol production is occurring even through the spot price of corn has recently fallen in comparison to the prices of ethanol and DDGS. The differential between the spot price of corn and the co-products is the following in different sections of the Corn Belt for week ending April 10, 2015:

  • Illinois differential is $2.32 per bushel in comparison to $2.20 the prior week and $5.47 a year ago.
  • Iowa differential is $1.99 per bushel in comparison to $1.88 the prior week and $5.31 a year ago.
  • Nebraska differential is $1.68 per bushel in comparison to $1.51 the prior week and $5.52 a year ago.
  • South Dakota differential is $2.19 per bushel in comparison to $1.98 the prior week and $5.84 a year ago.

7. Country News

Brazil: A fire at the Port of Santos has burned for over a week and has blocked truck access for grain deliveries, according to Reuters. The fire has been concentrated in a fuel storage area and firefighters have had a difficult time preventing reignition in fuel tanks after being extinguished. Ship movement in the port has been restricted and cannot refuel. The fire is not expected to impact this month’s grain export volume, as the port has large stocks on hand, however this could change if truck traffic is delayed for long. Santos handles roughly half of Brazil’s annual corn exports.

Saudi Arabia: The minister of water and electricity announced this week that Saudi Arabia will be looking to cease all barley production in favor of imports as part a of a broader national effort to curb wasting water supplies in the desert country, according to Bloomberg News.

South Africa: Africa’s largest corn producer has imported yellow corn for the first time since April 2014, reports Bloomberg News. The worst drought since 1992 has negatively impacted the country’s corn production, which has led the importation of 21,137 MT from Argentina. South Africa is expected to produce 9.67 MMT of corn this year, which would be the smallest harvest since 2007.

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 not expected to change much this week and they didn’t. It was yet another quiet week with unchanged values. I guess that is good news for freight buyers and not so good for vessel owners. This seems to be a trend that is going to be difficult to break in the near future.

The shift in soybean business from North America to South America is underway with reports of Chinese cancellations of U.S. soybeans and a growing line up of ships waiting to load in Brazil. However, this has not had a significant impact on overall rates from either hemisphere.

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

The charts below represent January-December 2014 annual totals versus year-to-date 2015 container shipments to Indonesia.

Indonesia 2015
Indonesia 2014
International Freight Rates

10. Interest Rates

Interest Rates