Market Perspectives September 11, 2015

1. Chicago Board of Trade Market News

Week in Review

Outlook: USDA’s September data revealed in today’s WASDE and Crop Production reports was as expected, but price action implied that the majority of traders feel the harvest bottom has been established as corn contracts had double digit gains. USDA data projected that yields in the Eastern Corn Belt will be slightly below trend, while yields in the Western Corn Belt remain above trend. The end result was a 1.3 bushel reduction from the August estimate for total U.S. yields to 167.5 bu. This caused production to decline by about 101 million bushels, but there was also an additional 40 million bushel decline in the beginning stocks carried over from the prior season. 

Even though there was a slight 20 million bushel decline in the projected domestic use for the current 2015/16 season, the reduced supply resulted in the stocks to use ratio for U.S. corn falling to 11.6 percent. That drop was enough to make market participants take notice, as the price of U.S. corn starts to increase exponentially whenever the stocks to use ratio falls below 10 percent.      

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 11-14, 2015, at least moderate rainfall (o.5 inch or more) is expected across most of the South and East, specifically, from southern and eastern Texas, the Mississippi/Ohio Rivers’ Confluence, and the eastern Great Lakes Region eastward. Between 2 and 3 inches are forecast for coastal and south-central New England, southeastern New York, New Jersey, eastern Pennsylvania, Delaware, and eastern Maryland. Farther west, much of interior West Virginia, the Maryland Panhandle, and southwestern Pennsylvania should also receive 2 inches or more. To the west, eastern Kansas and western Missouri are expected to see 1 to locally 2 inches, but areas to the west and north of the central Great Lakes Region, the central Great Plains, and western Texas can expect less than 0.25 inch, save for scattered locations in the southern Rockies and northwestern-most Washington. A return to above-normal temperatures is expected from the High Plains westward to the Pacific Coast, with temperatures topping out 9 degrees F to 15 degrees F higher than normal from the Great Basin and San Joaquin Valley northward through the Intermountain West. Meanwhile, daily high temperatures will average a few degrees below normal from the central and southern Appalachians to the central Plains.

The odds favor a return to subnormal precipitation for the ensuing 5 days (September 15-19, 2015) from the Appalachians and Ohio Valley eastward to the Atlantic Coast from Georgia northward through New England. There is also a lesser tilt of the odds toward below-normal precipitation in west-central California and across western Texas and the southern High Plains. In contrast, wetter than normal weather is expected throughout the Pacific Northwest, Desert Southwest, Rockies, northern and eastern Great Plains, Mississippi Valley, and southern Florida Peninsula. Warmer-than-normal weather is anticipated from the High Plains eastward to the Atlantic Coast, except near the central Gulf Coast and Tennessee Valley. Meanwhile, cooler weather is expected to settle back into the northwestern quarter of the country.

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 for the 2015/2016 marketing year, which began September 1, totaled 411,200 MT. Increases reported for Colombia (186,500 MT, including 35,000 MT switched from unknown destinations and decreases of 3,600 MT), Mexico (71,900 MT), South Korea (60,800 MT), Japan (40,800 MT, switched from unknown destinations), the Dominican Republic (31,100 MT), and Venezuela (30,000 MT, switched from unknown destinations), were partially offset by decreases for unknown destinations (84,900 MT). A total of 1,427,100 MT in sales were carried over from the 2014/2015 marketing year, which ended August 31. Exports for the period ending August 31 of 640,900 MT brought accumulated exports to 45,845,500 MT, down 3 percent from the prior year’s total of 47,375,100 MT. The primary destinations were Japan (193,400 MT), Colombia (113,400 MT), Mexico (105,900 MT), South Korea (63,800 MT), and Guatemala (34,900 MT). Exports for September 1-3 totaled 267,400 MT, with Mexico (121,500 MT), Colombia (65,500 MT), Japan (40,800 MT), and Venezuela (30,000 MT) being the primary destinations.

Barley: Net sales reductions of 1,000 MT for 2015/2016 resulted as increases for South Korea (200 MT), were more than offset by decreases for Morocco (1,200 MT). Exports of 13,900 MT were up noticeably from the previous week and from the prior 4-week average. The destination was Morocco.

Sorghum: Net sales for the 2015/2016 marketing year, which began September 1, totaled 162,000 MT. Increases were primarily reported for unknown destinations (100,000 MT), China (27,000 MT), Colombia (22,000 MT), and Mexico (13,000 MT). Exports for September 1-3 totaled 400 MT, with Mexico being the destination. A total of 227,700 MT in sales were carried over from the 2014/2015 marketing year, which ended August 31. Exports for the period ending August 31 of 282,200 MT brought accumulated exports to 8,321,700 MT, up 77 percent from the prior year’s total of 4,700,800 MT. The destinations were China (211,700 MT, including 59,000 MT late reporting) and Japan (70,500 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: DDGS demand was slow this past week as many buyers wanted to first see the results of USDA’s September data before deciding on a purchasing strategy. Those DDGS buyers are expected to make active inquires next week since the USDA data caused a pronounced jump in corn prices today.

The pricing structure indicates that DDGS merchandisers have mounting inventory that they are anxious to move. Consequently, they seem to have the strongest interest in selling large-volume purchases. Sizable price declines were offered to domestic buyers if they were willing to purchase rail-delivered DDGS in volume. Buyers of FOB vessels at the Gulf of Mexico were also offered similar favorable pricing opportunities. Buyers of containerized DDGS were not offered lower prices for spot market purchases, but they were also presented substantial cost savings for purchases at least one to two months into the future. 

Ethanol Comments: Improved demand for ethanol is implied in the decline of total ethanol stocks to 18.6 million barrels from the prior week’s level of 19 million barrels. Total U.S. ethanol stocks are now only 3.4 percent larger than the year-ago level of 18 million barrels. Furthermore, the decline in stocks occurred while the average daily production rate of ethanol increased to 958,000 barrels per day (bpd) from the prior week’s rate of 948,000 bpd. Lower price levels are apparently incentivizing consumption.

Please consider that the national average price of gasoline is presently approximately $2.44 per gallon, which is more than a dollar cheaper than the year-ago price. Stated differently, the $46.02 price for a barrel of petroleum in Texas (WTI) is less than the $47.30 decline from the year-ago price level. Consumers have incentive to increase demand. Strong demand may stabilize returns for ethanol producers. The differential between the cost of corn and the co-products improved slightly during the week ending September 11, 2015:

  • Illinois differential is $1.66 per bushel, in comparison to $1.72 the prior week and $2.94 a year ago.
  • Iowa differential is $1.61 per bushel, in comparison to $1.57 the prior week and $2.78 a year ago.
  • Nebraska differential is $1.54 per bushel, in comparison to $1.44 the prior week and $2.71 a year ago.
  • South Dakota differential is $2.26 per bushel, in comparison to $2.22 the prior week and $3.24 a year ago.

Last week, this section included a chart that showed the steady increase in U.S. ethanol exports from 2013 into the present day. To provide additional historical context, it should be noted that the U.S. was a net importer of ethanol in 2009. In 2010, exports exceeded imports by 200 million gallons, turning the U.S. into a net exporter. By 2011, the U.S. was the world’s largest ethanol exporter, a position it still maintains. Exports in 2011 were about 1.2 billion gallons, triple the approximately total 400 million gallons exported in 2010. The turnaround in 2011 is attributed to:

  • A decrease in Brazilian ethanol production and global exports;
  • The prospect of a 10-percent blend wall, which led the U.S. ethanol industry to export as an outlet for record production. 

During the 2014 calendar year, a total of 837 million gallons was exported. Through July of 2015, the U.S. ethanol export pace is ahead of last year’s pace. Key export markets include Canada, Mexico, and the EU.

7. Country News

Argentina: Sales of corn seed have declined sharply this year because of a poor profitability outlook. It is expected that Argentina's farmers will plant 23 percent less corn in the upcoming crop year, and most of that land likely will be shifted into soybeans. (World Perspectives, Inc.)

Australia: It rained during the winter despite a forecasted El Nino-driven drought, and the result is a larger barley crop. The Australian Bureau of Agricultural and Resource Economics has increased its barley crop forecast to 8.6 MMT, versus the 8.2 MMT predicted back in June. (Bloomberg)

India: The monsoon is withdrawing early in Himachal Pradesh in northern India. The corn crop was planted two weeks late and now is receiving 35 percent less rain than is optimal.

South Africa: The Free State is South Africa’s largest corn producing province (44 percent of the nation’s supply) and it has been declared a “drought disaster.” The second largest producing area, the North West Province has also been afflicted. The result is that South Africa’s corn crop is projected to be 9.84 MMT versus 14.3 MMT in 2014. (Bloomberg)

Zimbabwe: Repeated problems with drought are forcing farmers to switch from producing corn to growing sorghum. The corn crop this year will be 742 KMT, roughly half its usual size. As a result, Zimbabwe will spend $300 million importing 700 KMT of grain. (Reuters)

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: There was no relief for vessel owners this week. The Baltic exchange indices fell further and the physical market followed. Trading volumes picked up a bit, but aside from the Capesize market the added activity was all at lower levels. In grain freight markets, we are in that transitional time between big South American corn and soybean shipments and the advent of the North American fall harvest. Export vessel lineups in the U.S. Gulf and PNW have slipped back from previous weeks but should soon ramp up as the harvest gains momentum.

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 South Korea.

South Korea Container Shipments 2015
South Korea Container Shipments 2014
International Freight Rates for Feed Grains

10. Interest Rates

Interest Rates