Market Perspectives September 24, 2015

1. Chicago Board of Trade Market News

Week in Review

Outlook: The December corn contract has spent the last week carving out a uniform consolidation pattern known as a pennant. A pennant is a technical chart pattern that normally implies that prices will resume the previous move, often after some effort is exerted by means of heavy volume. The current pennant would imply that the continuation in price direction is upward. However, the pole that the present pennant is attached to is not very long – about 35 cents. That short pole lessens the credibility of an assumption that will immediately continue upward. An additional dampening effect is that this technical formation is being created just as the U.S. corn harvest is coming into full swing, for a crop with conditions that are consistently rated favorably.

These facts, along with global competition, means that the required volume to move corn contracts higher may not occur without some additional support that helps diminish the confidence of traders with a bearish mindset. Fortunately, there may be some support from wheat contracts due to recent dry weather conditions in Russia and Australia, and from the soy complex if there are announced purchases by China. Such events can change mindsets to perceive sell-offs as buying opportunities. The outlook is that corn contracts may currently struggle to break out to the upside, but market perspectives will become increasingly bullish from this point forward.

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: A cold front infused with tropical moisture will remain the focus for locally heavy showers, primarily from the southern High Plains into the upper Midwest. Additional rainfall in the vicinity of the front could reach 1 to 3 inches in a few spots. Meanwhile, a low-pressure system will drift westward toward the middle and southern Atlantic Coast, bringing a mid- to late-week increase in rainfall. Five-day rainfall totals could reach 2 to 5 inches or more in the Carolinas and parts of neighboring states. Warm, mostly dry weather will cover the remainder of the country, except for some late-week showers in the Northwest. The NWS 6- to 10-day outlook for September 29 – October 3 calls for the likelihood of above-normal temperatures nationwide, with near-normal temperatures confined to the Pacific Coast States. Meanwhile, wetter-than-normal conditions over the Southeast and from the north-central Plains into the western Corn Belt will contrast with drier than normal conditions across the central and eastern Great Lakes Region and from the lower Four Corners into central and northern Texas.

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 426,300 MT for delivery in 2015/2016 were down 20 percent from the previous week. Increases were reported primarily for Mexico (159,600 MT), Colombia (154,700 MT, including 93,600 MT switched from unknown destinations and decreases of 1,100 MT), Bangladesh (54,300 MT, including 50,000 MT switched from unknown destinations), Guatemala (39,900 MT), and Taiwan (18,100 MT), were partially offset by decreases for unknown destinations (23,800 MT) and Japan (4,700 MT). Exports of 795,400 MT were down 1 percent from the previous week. The primary destinations were Mexico (281,500 MT), Japan (187,700 MT), Colombia (163,600 MT), Bangladesh (54,300 MT), Peru (32,600 MT), Canada (28,000 MT), and Guatemala (21,800 MT).

Barley: There were no sales or exports reported during the week.

Sorghum: Net sales of 58,200 MT for 2015/2016 were up noticeably from the previous week. Increases reported for China (228,900 MT, including 167,000 MT switched from unknown destinations and decreases of 1,400 MT) and Mexico (6,400 MT), were partially offset by decreases for unknown destinations (167,000 MT) and Japan (10,000 MT). Exports of 169,300 MT were to China (167,900 MT) and Mexico (1,400 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: DDGS merchandisers report that even when interest is expressed in barge shipment and there is active railcar delivery to Chicago for trans-loading, there presently seems to be no export demand. Thus, merchandisers are seeking to encourage foreign buyers to come to the table by extending reduced rates. In that regard, containerized rates declined on average by $10/MT. Meanwhile, spot rates to certain destinations – specifically Yokohama, Japan and Manila, Philippines – declined by $20/MT. 

Please note that nearby spot market offers for October are lower than the more distant November and December time period for both foreign and domestic buyers. There was a small $1/MT decrease in the average domestic price for spot market DDGS, but that was primarily because of the influence of lower prices that are being offered for bulk purchases of DDGS by barge. The domestic price for DDGS being shipped by rail to the West Coast of the United States actually increased by $3-6/MT.    

Ethanol Comments: Total U.S. ethanol stocks increased to 18.9 million barrels for the week ending September 18, 2015. This is a 3.3 percent increase from the prior week’s level of 18.3 million barrels. The increase occurred even though there was a modest decline in the average daily production rate of 938,000 barrels per day (bpd) from the prior week’s average daily rate of 961,000 bpd. However, the increase in stocks during a period of lesser production can be explained by ethanol imports at an average daily rate of 44,000 bpd. Thus, the build-up in stocks makes sense and is not necessarily a sign of weaker demand.

Demand for ethanol should actually increase if lower gasoline prices encourage more consumption: The retail price for gasoline has decreased for five weeks in a row. The U.S. Energy Information Administration reported the national average retail price of gasoline to be $2.327 per gallon on September 21, which is almost 5 cents below the prior week’s price and more than a $1.00 below the year-ago price.

U.S. ethanol export statistics will be published next week, September 30, and the results will be analyzed in this section. Further, weekly margin (differential) data will be published tomorrow, Friday September 25, and subsequently analyzed in next week’s report. 

7. Country News

Brazil: Sergio Mendes, director of the cereals export association ANEC expresses concern that a strike by the Federal Agricultural Agents Union (Anffa) could adversely impact some corn exports. Brazil is likely to be the world’s number two corn exporter this year. (Reuters)

India: The latest Ministry of Agriculture/GOI estimate for the 2014/15 Kharif season corn crop places production at 15.5 MMT, down 5.43 percent from an earlier estimate, and overall coarse cereal production at 27.88 MMT, down 6.5 percent. Some believe that the faltering monsoon will have produced even less grain than currently estimated.

Romania: The corn harvest is 40 percent complete with production expected to be down 25 percent from last year due to an extremely hot and dry summer.

Ukraine: The unusually dry weather this summer places one private estimate of the current corn crop at 25 MMT, though other analysts say it could drop to 23 MMT. That would be 15 percent lower than USDA’s current forecast and a 20 percent reduction from corn production a year earlier. (Dow Jones)

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: Global ocean freight markets continue to be conflicted. Those trading the Baltic Indices and paper market seem to want to push things upward. The physical market, however, is not so willing to follow. And investors, mostly the fund money, continue to ask: is this the right time to invest in vessels? Is the market finally poised for a turnaround? This is an intriguing question but it will take a lot more than wishful thinking and hoping to make it happen. I read a very interesting freight article today that suggested that it may take ten more years before vessel owners witness a true turnaround in values. I obviously can’t predict the exact timing of a potential market turn, but do not believe it will come this year or next. So hang on to your hats; we are likely to experience rough seas ahead and more financial fallout.

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 the Philippines.

Philippines Shipments 1
Philippines Shipments 2
International Freight Rates for Feed Grains

10. Interest Rates

Interest Rates