Market Perspectives February 11, 2016

1. Chicago Board of Trade Market News

Week in Review

Outlook: Corn is back trading on the low end of the recent trading range and it looks technically weak. The trade figured that USDA’s February 9, 2016 WASDE report would reflect higher ending stocks but it tinkered with corn more than expected. U.S. corn exports for MY 2015/16 were cut by 50 million bushels, and imports were raised by 10 million bushels. After other adjustments, ending stocks were raised 35 million bushels. Meanwhile, forecasted world corn production was increased by 2 MMT more than expected, largely due to increases in Argentina (+1.4 MMT) and Brazil (+2.5 MMT). The market had expected reductions in South American production.

Nearby corn futures are now within a few pennies of their lowest level since September 2014. Recent rains in Argentina and Brazil have been helpful, and conditions have even improved somewhat in South Africa. Late planted corn in Argentina will need more rain as it hits the flowering stage. Some expect corn imports by South Africa could only be 4 MMT, but others dispute that number. Ocean freight is cheap, rail freight continues to be plentiful and lower in cost, grain is much cheaper and yet demand cannot be bought. Russia will deny corn imports from the U.S. for purported quality violations, though it is really based on geopolitics.

Final U.S. export data for 2015 shows an overall favorable year for sorghum sales to China, even though shipments were falling in the last half of the year. However, it was hay exports that remained bullish all the way to the end of the year, yielding a 21 percent increase over 2014 and an average price 21 percent higher than the previous year.

The next big USDA report to be anticipated by the trade is release of the 31 March planting intentions by U.S. farmers.

2. CBOT Corn Futures

March Corn Futures

CBOT Graph

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

U.S. Drought Monitor Weather Forecast: During February 11-15, a half-inch or less of precipitation (liquid equivalent) is forecast for far northwestern California and the western margin of the drought region in Oregon. One to two inches of precipitation is anticipated across northern Idaho and northeastern Oregon. Unfortunately, much heavier amounts of precipitation (3-7 inches) are predicted for parts of the Pacific Northwest which are no longer in drought. Precipitation amounts of a half-inch or less are predicted for the Dakotas and most of the Mississippi Valley, with perhaps an inch for the Arkansas-Louisiana-Texas region, and for downwind areas of the Lower Great Lakes region.

During the ensuing 5 days (February 16-20), the projected precipitation pattern generally favors above-median precipitation from the Pacific Northwest and northern Rockies eastward across North Dakota, and continuing eastward and southeastward across the Great Lakes region, the Ohio and upper Tennessee Valleys, Appalachians, and Atlantic Coast states from Maine to South Carolina. Below-median precipitation is favored from California and the Southwest eastward across central and southern sections of both the Rockies and Great Plains, most of the Middle and Lower Mississippi Valley, and the Gulf Coast states including all of Florida. This pattern is what would be expected of a La Nina winter, not an El Nino winter. At any rate, some drought relief is at least favored across the northern U.S. during this period, but this is not the case for places like (most of) California, the Southwest, and Texas. Dryness is rapidly expanding across Texas, and some degradation in the drought depiction will probably be needed next week.

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 405,000 MT for 2015/2016 were down 64 percent from the previous week and 57 percent from the prior 4-week average. Increases were reported for Japan (113,700 MT, including 40,700 MT switched from unknown destinations), Colombia (71,800 MT, including 61,000 MT switched from unknown destinations and decreases of 45,800 MT), Taiwan (68,600 MT), Mexico (47,100 MT), Peru (42,000 MT, including 30,000 MT switched from unknown destinations), and Panama (26,100 MT, including 20,700 MT switched from unknown destinations). Reductions of 40,600 MT were reported for unknown destinations. For 2016/2017, net sales reductions of 58,900 MT were for Japan. Exports of 528,700 MT were down 20 percent from the previous week and 16 percent from the prior 4-week average. The primary destinations were Mexico (199,900 MT), Colombia (106,900 MT), Japan (103,300 MT), Peru (33,000 MT), Taiwan (29,600 MT), and Guatemala (22,200 MT).

Optional Origin Sales: For 2015/2016, the current outstanding balance totals 398,000 MT, all unknown destinations.

Barley: There were no sales reported during the week. Exports of 400 MT were reported to Japan (300 MT) and Taiwan (100 MT).

Sorghum: Net sales of 188,600 MT for 2015/2016 for Pakistan (109,800 MT, including 13,800 MT switched from unknown destinations), China (92,000 MT, including 49,900 MT switched from unknown destinations and decreases of 14,300 MT), and Mexico (3,000 MT), were partially offset by reductions for unknown destinations (16,300 MT). Exports of 240,000 MT were up 45 percent from the previous week and 50 percent from prior 4-week average. The destinations were China (222,400 MT), Pakistan (14,800 MT), and Mexico (2,800 MT).

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: USDA’s recent Grain Crushing and Coproducts Production report indicates that production of both distillers dried grains (423.6 KMT) and distillers dried grains with solubles (1.97 MMT) were up in December versus November, but down relative to totals in December 2014. The U.S. produced 27.7 MMT of distillers dried grains in 2015, and exported half of it with China a major buyer.

For this week’s report, February prices firmed to all tracked destinations while there were only a few declines in March and April positions; all of this took place despite a relatively quiet market. March/April prices for U.S. delivery points firmed. Thailand showed the largest decline at $5/container. Still, there was a 4,000 MT sale to Thailand for March/April delivery. The price, at $208/container, was aggressive but reflected that there is still some demand in the market.

Ethanol Comments: USDA raised corn use for ethanol grind by 25 million bushels in its February 9, 2016 WASDE report. Low petroleum prices are pressuring ethanol margins but biofuel mandates will keep exports large in 2016. Ethanol exports in December (309 million liters) were at a nine-month high. Ethanol exports overall in 2015 (836 million gallons) represented 6 percent of total U.S. production in 2015. March ethanol futures jumped to a six-week high this past week as a result of an arbitrage opportunity as Brazilian ethanol prices hit a 5-year high.

Fuel ethanol stocks rose last week by 600,000 barrels to 23 million total on production that was up nearly 10,000 barrels per day. There were again no imports.

Meanwhile, the margin between the corn price and the value of ethanol and coproducts dropped last week in all four tracked markets (see below). 

  • Illinois differential is $1.29 per bushel, in comparison to $1.35 the prior week and $1.84 a year ago.
  • Iowa differential is $1.16 per bushel, in comparison to $1.21 the prior week and $1.50 a year ago.
  • Nebraska differential is $1.39 per bushel, in comparison to $1.41 the prior week and $1.41 a year ago.
  • South Dakota differential is $1.38 per bushel, in comparison to $1.55 the prior week and $1.66 a year ago.

7. Country News

Argentina: Newly installed President Mauricio Macri fulfilled a campaign promise by raising the ethanol blend mandate from 10 percent to 12 percent. The mandate has been consistently raised from 6 percent in 2013 to 8.5 percent in September 2014, to 10 percent in December 2014 and now 12 percent. (WPI)

India: The government’s bid to make the country self-sufficient in food is threatened by adverse weather in 80 percent of the production areas. While global food prices decline, they are rising in India. A 2 MMT shortfall in corn production will be partially offset by poultry growers through increased consumption of pearl millet, broken rice and sorghum, but the import of 1 MMT of corn is still a possibility. (WPI)

Turkey: Barley production is expected to rise to 3.4 MMT, and feed use will expand by 1.5 MMT. Corn production is also higher by 1.3 MMT, pushing import requirements lower by an equal amount. But corn stocks will grow by 500 KMT as cheaper feed wheat and feed barley takes its place. (USDA/FAS/GAIN)

Zimbabwe: Agriculture Minister Joseph Made says that all emergency corn imports will be inspected and any found with GMOs will be rejected. Some may be considered later if trucked under security escort to milling plants. (Bloomberg)

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: China and much of Asia are out on holiday. It is the Lunar New February 8-13, 2016. Global freight markets are therefore very quiet, but that is a relative description as things have been slow for many months even without a holiday. All-in-all ocean freight markets are just bouncing along bottom. Markets can’t really go much lower but do not have the support to move up. So we have arrived at bit of a standoff. Now we wait to see what shippers go into cold lay-up, who goes bankrupt and who continues to operate. The Baltic Panamax index did move up a little this week but I don’t see that it has affected rates in the physical market.

The Panama Canal Authority (ACP) announces that sill reinforcements in the new locks have been completed this week, bringing the Panama Canal Expansion one step closer to the projected June 2016 inauguration. The maximum vessel draft recommendation at the South West Pass to the Mississippi River remains at 41 feet.

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 year-to-date 2016 versus January-December 2015 annual totals for container shipments to South Korea.

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

10. Interest Rates

Interest Rates