1. Chicago Board of Trade Market News
Outlook: Considering the significant volatility in energy and financial markets, grain contracts had been trading heavily but with relatively minimal price movement. However, given the near-record short positions by funds it did not take much news to create a burst of short-covering. The weaker dollar coupled with corn exports out of the Gulf sent a reminder that Argentina and Ukraine do not own the market. Indeed, sales out of Argentina have been completely dead since the beginning of the month. Note that the premiums currently being charged for Argentine corn can drop but they have not moved lower very quickly. By contrast, the trade is estimating U.S. corn exports for the most recent week to total 600,000 to one million tons.
March corn reached $3.6775 in overnight trading on 18 February, its highest level in two weeks, but then retreated given the abundant supply situation, including both cheap freight and feed wheat available at a minimal premium ($6/MT) over corn. However, there are factors creating a floor, including slow farmer selling, port delays in Brazil and of course weather uncertainties. Note that the Buenos Aires Grains Exchange now says that it expects Argentine farmers to harvest 25 MMT of corn in the 2015/16 crop year, versus 28.2 MMT in 2014/15.
Fresh inputs from external markets include higher petroleum prices, though most acknowledge there will be cheating on any promise by OPEC members to cut production.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: Mild weather will expand to cover much of the nation, including the previously cold eastern U.S. Warm weather will continue to set high-temperature records across the nation’s mid-section, with warmth peaking in many areas on February 18. On that date, high temperatures could reach 90°F on the southern High Plains. At the height of the southern Plains’ warm spell, gusty winds and dry conditions will lead to an enhanced risk of wildfires. Dry weather will prevail during the next 5 days across the Deep South, as well as the central and southern Plains. In contrast, precipitation totaling 2 to 6 inches — much of which will fall on February 17-18 — can be expected in parts of northern California and the Pacific Northwest. Toward week’s end, snow can be expected from the upper Great Lakes into northern New England, while rain showers will develop from the mid-South into the Ohio Valley. The NWS 6- to 10-day outlook for February 23 – 27 calls for above-normal temperatures across much of the western and central U.S., with cooler-than-normal conditions largely confined to the Southeast. Meanwhile, below-normal precipitation is anticipated from southern California and the Great Basin eastward into the Corn Belt and Great Lakes, encompassing the Rockies and Plains. Wetter-than-normal conditions will be confined to coastal areas of the Pacific Northwest and from the eastern Gulf Coast States into New England.
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
The following commentary reflects the week of February 4, 2016.
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: Prices for DDGS (minimum 35 percent Pro-fat combined) delivered March and April firmed up for all destinations this past week except one (Laredo, Texas). Prices increased an average of USD $2/container but were higher by over USD $3/container for Southeast Asia destinations. The highest prices were $224 to Malaysia, the Philippines and Vietnam for March delivery.
With the Chinese New Year out of the way, customers were ready to buy for March and April positions. New research showing the value of DDGS in aquaculture could stimulate some demand.
Ethanol Comments: The Energy Information Administration (EIA) reported that U.S. weekly ethanol output was up 6,000 barrels per day (bpd) last week to 975,000 bpd. U.S. weekly ethanol stocks were up 262,000 barrels for a total of 23.22 million.
Meanwhile, the margin between the corn price and the value of ethanol and coproducts pushed higher last week in all four tracked markets (see below).
- Illinois differential is $1.36 per bushel, in comparison to $1.29 the prior week and $1.78 a year ago.
- Iowa differential is $1.26 per bushel, in comparison to $1.16 the prior week and $1.46 a year ago.
- Nebraska differential is $1.48 per bushel, in comparison to $1.39 the prior week and $1.41 a year ago.
- South Dakota differential is $1.50 per bushel, in comparison to $1.38 the prior week and $1.67 a year ago.
7. Country News
Africa: The drought has made transparent the policy problems in Sub-Saharan Africa. Zimbabwe is insisting corn imports must be non-GM, but has a loophole for milled maize. Zambia is refusing more corn exports to Zimbabwe, but black market corn is nonetheless making its way across the border. Malawi banned exports of its subsidized corn, but farmers reacted by cutting production. (WPI)
India: Prices offered (approximately $207/MT landed) on PEC’s latest tender for 240,000 of GMO free corn may be too high to complete the purchase. Imported corn appears to be priced around $10/MT higher than domestic corn now being delivered. (WPI)
Philippines: The government is scrambling to issue new regulations regarding biotech crops after a court sided with environmentalists and imposed a ban effective February 23. The new regulation is expected in time to avoid disruptions in production and imports. (WPI)
South Africa: Yellow corn prices fell for five days, the longest losing streak since August of 2014 but the failure of rains to develop pushed white corn prices higher ($315.71/MT). (Bloomberg)
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: The Baltic Dry-Bulk and Panamax indices we up 6-12 percent (Atlantic-Pacific) last week and continued to move up an additional 7-26 percent this week. So is this the big rally that vessel owners have been waiting for? I don’t think so.
These indices are based on time charter rates across numerous routes and don’t always reflect what is happening in each physical market. It is also rather easy to produce a big percentage move with small numerical increases when the market is at these low levels.
Asia is just returning form the Lunar New Year celebrations and we will have to see what develops. However, the oceans are still filled with too many vessels and I do not believe the global economy is quite ready to generate enough cargo demand to fill all the empty holds. So, my advice to any vessel owner would be: grab what you can while you can. Having said this, I still don’t see too much improvement in any of the physical rates.
The charts below represent year-to-date 2016 versus January-December 2015 annual totals for container shipments to Malaysia.