Market Perspectives September 4, 2015

1. Chicago Board of Trade Market News

Week in Review

Outlook: The 2015/16 crop year for U.S. corn and sorghum began on September 1, 2015. The crop year starts with attractive price levels for end-users of feed grains. Corn futures prices for the crop year are averaging below $3.75 per bushel. Livestock and poultry producers have the means to lock in favorable margins. Ethanol producers also have the means to fix their corn costs at attractive levels, and that can be an advantageous opportunity whenever margins are compressed thin within a competitive market.

Next Friday (September 11, 2015) USDA will publish an update of their latest yield estimates. Changes to corn yield estimates are not expected to be significant in size because there is presently limited harvest data available. Corn contracts could experience a small bounce from current price levels next week prior to the release of USDA’s data, but no aggressive price action is expected before or after the reports on Friday. Rather, the outlook is that the majority of market participants will instead seek to evaluate when the seasonal low is being established in order to extend their purchasing strategies. The rate of feed grain export sales commitments are expected to increase when there is a general perception that corn contract prices have created a harvest bottom.

Domestic feed demand will be better defined when USDA publishes the quarterly stocks data at the end of the month on Wednesday, September 30, 2015. This data will show the beginning feed grain stocks for the current 2015/16 season; this data will directly influence the projections for this season’s ending stocks. That more distant report is expected to have a more prolonged influence upon price action than will the September adjustments to yield data that will be released next week.

2. CBOT Corn Futures

December Corn Futures

CBOT Table

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

U.S. Crop Condition

U.S. Drought Monitor Weather Forecast: For the upcoming 4-day period, September 4-7, 2015, a swath of rain (1.5-2.0 inches) is forecast across eastern Arizona, much of western and central New Mexico, and western Colorado. For the southern Atlantic Coast, 1.5-3.5 inches of rain is predicted. Beneficial precipitation is also expected for western Washington (1.5 inches), northern Montana (2-4 inches), and western sections of both Virginia and North Carolina (1.5 inches). For the ensuing 5-day period, September 8-12, there are elevated odds for above-median precipitation for most of the central and eastern CONUS. Further, there are elevated odds for below-median precipitation for the northwestern CONUS.

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 and Exports
U.S. Export Inspections
USDA Grain Inspections for Export

Corn: Net sales of 112,700 MT for delivery in 2014/2015 were up noticeably from previous week and from the prior 4-week average. Increases reported for Japan (173,700 MT, including 169,100 MT switched from unknown destinations and decreases of 2,100 MT), South Korea (64,000 MT, including 65,000 MT switched from unknown destinations and decreases of 1,000 MT), Egypt (55,000 MT), Colombia (26,900 MT, including 22,500 MT switched from unknown destinations and decreases of 5,000 MT), and Honduras (16,100 MT, including 14,900 MT switched from unknown destinations), were partially offset by decreases for unknown destinations (252,400 MT), the French West Indies (6,000 MT), Canada (5,600 MT), and El Salvador (3,300 MT). Net sales of 328,300 MT for 2015/2016 were reported primarily for unknown destinations (132,200 MT), Panama (60,000 MT), Canada (47,300 MT), Mexico (45,600 MT), and Japan (32,200 MT). Decreases were reported for Jamaica (12,000 MT) and the French West Indies (2,000 MT). Exports of 1,077,200 MT were up 31 percent from the previous week and 20 percent from the prior 4-week average. The primary destinations were Japan (341,800 MT), Mexico (324,000 MT), South Korea (64,200 MT), Colombia (61,700 MT), Egypt (55,000 MT), Taiwan (48,700 MT), and Honduras (47,500 MT).

Barley: Net sales of 500 MT for 2015/2016 were reported for Taiwan. Exports of 400 MT were reported to Japan.

Sorghum: Net sales reductions of 2,400 MT for 2014/2015 resulted as increases for Mexico (1,300 MT), were more than offset by decreases for China (3,700 MT). Net sales of 56,200 MT for 2015/2016 were reported for unknown destinations (55,000 MT) and Mexico (1,200 MT). Exports of 50,300 MT were down 70 percent from the previous week and 73 percent from the prior 4-week average. The destinations were China (49,000 MT) and Mexico (1,300 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: Spot market prices for DDGS were largely unchanged this past week, but prices declined for purchase into the future. For example, there was no change in the nearby price for containerized DDGS, though prices one to two months into the future declined on average by $9/MT. As well, there was a consistent $5/MT reduction in DDGS prices for anyone purchasing bulk delivery to the Gulf. In contrast, the domestic buyers who predominately like to purchase in the spot market saw all of their prices increase modestly during the past week.

Many domestic buyers seem to be watching for a potential harvest bottom to occur in corn prices before they purchase bulk DDGS for rail shipment. Of course, obtaining a favorable freight rate is the other side of the coin that must be timed correctly. Both rail and barge rates can increase as demand picks up during grain harvest. Therefore, it can be particularly advantageous for DDGS buyers to work in conjunction with merchandisers to secure the best combinations of prices for the future. Such a partnership can be particularly beneficial for foreign buyers who are less familiar with the U.S. rail and barge systems than are the DDGS merchandisers.

Ethanol Comments: The Brazilian Real is a currency that has been in sharp decline against the U.S. dollar since last fall and has lost more than 25 percent of its comparative value. Nevertheless, the United States has maintained its status of the world’s largest exporter of ethanol. Recent demand from nations such as Canada, South Korea, India and the Philippines has all exceeded Chinese purchases of U.S.-produced ethanol.

U.S. ethanol exports in July were up 26 percent over the average of the prior three months, keeping the nation in the top spot globally for overseas sales. World trade in biofuels has been rising and while historically volatile on a month-to-month basis, U.S. exports have been relatively more consistent over the past year.

Please note that the U.S. Energy Information Administration (EIA) does not maintain a data series of weekly U.S. ethanol exports, but they do monitor the weekly changes in ethanol stocks, production and imports. The composite of changes in these other data series can imply that U.S. ethanol exports are either increasing or decreasing. For example, the most recent data for week ending August 28 shows that total U.S. ethanol stocks increased by 2 percent to 19 million barrels, up from the prior week’s level of 18.6 million barrels. This increase occurred as there was a slight reduction in the average daily production rate of 948,000 barrels per day (bpd), down slightly from the prior week’s level of 952,000 bpd. One primary reason for the increase in total stocks is because ethanol imports more than offset the decline in production; U.S. ethanol imports averaged 12,000 bpd during the week ending August 28. Considering this combination of data, a more sizable increase in ethanol exports is necessary in order to cause a further decline in total U.S. ethanol stocks.

Current abundant ethanol stocks are a primary reason for the narrow differential between the cost of corn and the co-products; that differential is the following for the week ending September 4, 2015: 

  • Illinois differential is $1.72 per bushel, in comparison to $1.64 the prior week and $3.58 a year ago.
  • Iowa differential is $1.57 per bushel, in comparison to $1.63 the prior week and $3.40 a year ago.
  • Nebraska differential is $1.44 per bushel, in comparison to $1.45 the prior week and $3.25 a year ago.
  • South Dakota differential is $2.22 per bushel, in comparison to $2.15 the prior week and $3.91 a year ago.

7. Country News

Argentina: Agricultural policy is being actively discussed among candidates who are competing against each other for the nation’s presidential election that will take place on October 25. Candidate Mauricio Macri is gaining some attention in the farm community by declaring that he will lift export quotas on corn shipments abroad, according to Reuters. Macri has served as mayor of Buenos Aires and is considered business friendly.

China: Trade data imply that recent volatility within the Chinese economy has not eliminated the need to feed animals and the interest of buyers to do so in the most cost-effective manner: Chinese combined imports of U.S. corn, DDGS, sorghum and barley hit a new record high in July, according to Reuters. The price of these imports is substantially below China’s domestically produced corn.

European Union: Low rainfall and high temperatures have taken a toll this season on the EU corn crop. Production this season is estimated by the MARS service to be down more than 20 percent from last year’s record production and almost 9 percent below the 5-year average, reports Reuters. Some of the hardest hit corn-producing regions were in France, Spain, Italy, Southern Germany and Poland.

Indonesia: Feed grain buyers from Indonesia and other Asian nations are taking advantage of current low global prices by extending coverage of their feed needs through calendar year 2015, according to Reuters. Indonesian buyers have purchased both U.S. corn and DDGS for needs through December. Meanwhile, Vietnamese buyers commented that they are also covered through December and are now looking to make purchases through February 2016.

8. Ocean Freight Markets and Spread

Bulk Freight Indices for HSS

9. Ocean Freight Comments

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: The Baltic exchange indices slipped a little lower this week. Trading volumes were again light, and the Chinese holiday helped to create a quiet and softer tone to freight markets. Rates in the physical market are probably slightly slower this week but, due to very light trading activity, most rates have been left unchanged for the week and we’ll wait to see how things develop next week. Corn and soybean harvests have started in the southern growing areas of the U.S., but it will be another 20-35 days before it reaches the primary production areas. With the relatively low commodity prices, most in the market are expecting farmers to hold back on harvest time selling, so we are unlikely to experience a harvest flood of grain or much logistical pressure.

Baltic-Panamax Dry-Bulk Indices
Below is a recent history of freight values for Capesize vessels of iron ore from Western Australia to China:
Capesize Iron Ore
U.S.-Asia Market Spreads

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

Japan Container Shipments 2015
Japan Container Shipments 2014

10. Interest Rates

Interest Rates