1. Chicago Board of Trade Market News
Outlook: Two factors drove corn futures in opposite directions this week: the weather and the WASDE. Weather forecasts calling for hot, dry conditions across much of the Corn Belt sent traders into short-covering and weather-market-rally mode early this week. The rally was quickly broken by a fundamentally bearish July WASDE report. Going forward, these two factors will continue to dictate the market’s direction.
Traders and analysts worried about long-run weather forecasts that called for abnormally hot and dry weather across the Corn Belt a lot this past week. The forecasts indicated a heat wave would move across the region during the corn crop’s key silking stage. Unfavorable conditions during this period can quickly reduce yields, and some yield models were estimating a national yield of 157 bushels/acre. The forecasts drove December futures to touch $4.17/bushel on Tuesday before closing lower.
On Wednesday, the USDA issued a WASDE report that was expectedly bearish. U.S. 2017/18 corn ending stocks were increased by 215 million bushels to 2.325 billion. Larger old-crop supplies and larger new-crop seeding rates drove the increase in ending stocks. The WASDE included a trendline yield of 170.7 bushels/acre, as was expected by the trade. Notably, the average U.S. corn yield could fall 5 bushels/acre and leave 1.900 billion bushels in ending stocks. Some analysts are noting it will take a yield of less than 160 for the fundamentals to become truly bullish corn.
Current weather forecasts have lowered expectations for high temperatures, though the Midwest will remain dry. A high-pressure ridge over the Mountain West and Plains will keep moisture out of the Plains and Northern Plains for the coming 10 days. Any moisture will likely go to the Great Lakes as storm systems move around the high-pressure ridge. Fortunately, the forecasts are calling for cooler temperatures which is a lesser threat to silking corn. However, the dry trend must still be watched and further deterioration in drought conditions could swing futures markets bullish again.
From a technical perspective, December corn futures have turned decidedly bearish. Tuesday’s outside-day with a lower close chart formation was bearish and futures fell 30 cents over Wednesday and Thursday. The selloff blew through psychological support at $4.00 and headed lower from there. The next minor support exists at $3.8075, the June 30 daily low, and major support at $3.74, the June 23 daily low and the lowest price since November 2016. Oscillating indicators are swinging back to bearish after the weather-market rally lifted them higher. December corn is now below the 10-day, 20-day, and 50-day moving averages but those seem to have offered little guidance in this year’s sideways market.
Going forward, the fundamentals are bearish unless the weather significantly damages yield potential. Trading will be choppy and additional downside is likely limited. Should the weather generate another rally above $4.00/bushel, farmers and commercial firms may find solid marketing opportunities.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: The NWS WPC 7-Day Quantitative Precipitation Forecast (QPF) calls for moderate precipitation accumulations (1 to 3 inches) across portions of the Southwest and Central Rockies as monsoonal moisture is expected to return while the remainder of the West will continue in a dry pattern. Much of the Eastern tier of the conterminous U.S. is expected to receive accumulations ranging from 1 to 3 inches with the heaviest accumulations forecasted for south Florida, eastern portions of the Carolinas, and southern New England. In the Midwest, widespread accumulations of 1 to 2.5 inches are expected across eastern and northern portions of the region. The CPC 6- to 10-day outlooks call for a high probability of above-normal temperatures across the northern half of the conterminous U.S., Gulf Coast, and California. Below normal temperatures are expected in southeastern Arizona, northern Texas, Oklahoma, and Arkansas. Below-normal precipitation is forecast for the Pacific Northwest, central Plains, Midwest, Mid-Atlantic, and Northeast while there is a high probability of above-normal precipitation across the Southeast, South, Southwest, Great Basin, and Intermountain West.
Follow this link to view current U.S. and international weather patterns and future outlook: Weather and Crop Bulletin.
4. U.S. Export Statistics
Corn: Net sales of 161,000 MT for 2016/2017 were up 15 percent from the previous week, but down 59 percent from the prior 4-week average. Increases were reported for Japan (112,200 MT, including 92,200 MT switched from unknown destinations), Spain (94,500 MT, including 65,000 MT switched from unknown destinations), Mexico (87,700 MT), Saudi Arabia (49,700 MT, including 47,000 MT switched from unknown destinations), and Peru (35,700 MT, including 32,500 MT switched from unknown destinations). Reductions were reported for unknown destinations (321,400 MT), El Salvador (12,300 MT), and the French West Indies (6,900 MT). For 2017/2018, net sales of 279,700 MT were reported primarily for Mexico (269,200 MT). Exports of 880,500 MT were down 21 percent from the previous week and 19 percent from the prior 4-week average. The primary destinations were Mexico (246,200 MT), Taiwan (98,700 MT), Spain (94,500 MT), Japan (92,200 MT), and Colombia (52,800 MT).
Optional Origin Sales: The current optional outstanding balance for 2016/2017 of 122,000 MT is for South Korea (68,000 MT) and unknown destinations (54,000 MT). The current outstanding balance for 2017/2018 of 112,000 MT is for unknown destinations.
Barley: Net sales of 300 MT for 2017/2018 were reported for South Korea (200 MT) and Japan (100 MT). Exports of 500 MT were reported to Japan.
Sorghum: Net sales of 59,600 MT for 2016/2017 reported for China (112,500 MT, including 53,000 MT switched from unknown destinations and decreases of 1,500 MT) and Mexico (100 MT), were partially offset by reductions for unknown destinations (53,000 MT). Exports of 103,700 MT were up noticeably from the previous week and from the prior 4-week average. The destinations were China (100,500 MT) and Mexico (3,200 MT).
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Merchandisers are reporting a stronger DDGS market despite the post-WASDE selloff in corn, soybean, and soybean meal futures. Corn prices’ recent strength has eroded ethanol margins, which will limit DDGS supply growth for a little while. Additionally, the abnormally hot weather across the Midwest is slowing ethanol plant production and creating more off-specification product. Consequently, the market for DDGS meeting required specifications is becoming even tighter. Traders are noting buyers aren’t interested at these prices but, given tightening fundamentals, sellers are sticking to asking prices. Some merchandisers are reporting the two-day selloff in corn futures helped facilitate trades.
FOB ethanol plant DDGS prices remain at 33 percent of Kansas City soybean meal prices, yielding a $2.56 per-protein unit cost advantage. Similarly, FOB Gulf DDGS retained 97 percent and 46 percent of FOB Gulf corn and soybean meal values, respectively. The price ratios are still below historic norms and imply DDGS should remain competitive for export demand.
FOB Gulf DDGS are higher this week while Barge CNF NOLA prices rose an equal amount. Prices for DDGS rail-delivered to the PNW are up $10/MT this week despite a $3/MT decrease in FOB PNW corn prices. Prices for 40-foot containers to Southeast Asia were up $2/MT this week with prices increasing for all reported destinations except Vietnam and Japan.
7. Country News
Brazil: UNICA reported that ethanol exports for June were down from a year earlier. By contrast, ethanol imports were high in June, reaching 199.5 million liters.
Soybean & Corn Advisor’s Michael Cordonnier raised his estimate of Brazilian corn production by about 1 percent to 95 MMT. As a result, the country will export a near record amount of corn this year (28-30 MMT). Production is encouraged because the government offers an above-market price premium. Corn exports have grown at an average annual rate of 21 percent over the past decade. (Ethanol Producer Magazine; Bloomberg; Reuters; Agra-net)
China: The National Grain Trade Center reports that 72 percent of the 4.3 MMT of corn offered for sale at auction last Friday was sold with an average price of 1,420 yuan. The government offered 2 MMT of corn for auction on 13 July and managed to sell 628 KMT of 2013 corn at an average price of 1,273 yuan ($187.58) (Bloomberg)
India: Petroleum Minister Dharmendra Pradhan said that India can replace Rs 1 lakh crore worth of hydrocarbon imports by bio-fuels but rejected the sugar industry’s demand for an increase in the price of ethanol. The Minister said that the primary job of sugar mills is to manufacture sugar and not ethanol. Meanwhile, U.S. marketers believe that India is a good market for importing more ethanol. (Economic Times; WPI)
Ukraine: UkrAgro estimates that Ukraine’s corn exports this year will reach a record 20.6 MMT, a 600 KMT increase from the earlier estimate. It raised Russia’s projected corn exports from 5 MMT to 5.6 MMT. (Bloomberg)
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: I’ve searched far and wide to come up with something new and interesting to say about these freight markets, but I fear that simply does not exist.
Last week I stated that the “…market continues to steam in circles” as freight markets were down $.50-0.75/MT; this week, they are mostly back up the same amount. The only exception is down in South America, where the vessel lineups continue to grow and the grain freight rates are up $1.50-$2.00/MT from the previous week.
We are in the process of finishing up the U.S. HRW wheat harvest, which did not really have much impact on rates from the U.S. Gulf. Now we will want to see what happens with the October-November corn and soybean harvest exports. It is interesting to see the very wide spread in the FOB vessel values of U.S. sorghum and corn. Sorghum values are at +95 CZ while corn sits at +29 CZ for August shipment.
The charts below represent YTD 2017 versus 2016 annual totals for container shipments to Thailand.