1. Chicago Board of Trade Market News
Outlook: Traders have not been kind to the corn market. December corn futures have lost 14 cents in the past two weeks and over 40 cents since the end of July. The biggest factors have been improved weather across the Corn Belt and USDA’s 2017 yield projection of 169.5 BPA.
Despite better weather and USDA’s projection of a large corn crop, skepticism remains. Farmers and crop scouts across the Midwest are reporting severely dry fields and ears with significant pollination issues. Additionally, parts of Iowa have been hotter and drier in 2017 than they were during the massive 2012 drought. These factors all but assure that USDA will lower its yield estimate in a later WASDE report. Until then, however, the market has to trade the best available information, which – in this case – means trading a 169.5 BPA national yield.
USDA’s export sales report was neutral/slightly bullish for corn. Old crop net sales of 2.5 million bushels were above the 1.1 million needed in this week’s report while the 27.5 million bushels exported last week were half of the 41.1 million required. This week’s activity puts total 2016/17 sales at 2.223 billion bushels, nearly equal to USDA’s export forecast. YTD exports stand at 2.086 billion bushels, 23 percent ahead of last year and on-target for total demand of 2.243 billion bushels.
Bearish news came from reports this week that Brazilian farmers – particularly those in Mato Grosso – are having to store corn in open air piles on the ground due to lack of storage space. Brazil’s incredible production this year has outweighed its storage capacity, which would typically induce a wave a farmer selling and pressure price. However, falling prices at the CBOT this week have pressured U.S. and Brazilian export prices, effectively discouraging any farmer sales in Brazil. The lack of selling now means U.S. farmers may face more competition later in the marketing year.
From a technical perspective, December corn is heading lower with little to stop it. The market is oversold but the contract has consistently put in new lows this week. Psychological support will likely be found at $3.60 and more at the life-of-contract low at $3.58 ½. At some point, the market will have to reckon with USDA’s probable yield reductions in the September, or more likely October, WASDE – but that time is not now.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: For the week of August 16-23, rain is forecast across most of the contiguous United States, save most of the western quarter and part of eastern to southern Texas. Rainfall may be in excess of two inches or more in some areas that will significantly benefit, including much of the Plains from North Dakota south through Oklahoma, parts of the Midwest where dry conditions have recently creeped in, and across much of the East Coast states. Over the next few days, temperatures are broadly forecast to be in the 70s to 80s across much of the northern tier and 80s to 90s across much of South. Temperatures in the 90s and higher are likely limited mostly to Texas, southwestern Arizona, and southern California.
Looking further ahead into the second week period, above-average temperatures are favored across most of the contiguous U.S., particularly in southern Texas, Florida, and part of the upper Midwest to the mid- and North Atlantic states. Wetter-than-average conditions are favored across much of the eastern two-thirds of the contiguous U.S., part of the west and most notably western New Mexico. Drier-than-average conditions are favored across most of Texas and Oklahoma, along with the northwestern tier of the Contiguous U.S.
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 62,400 MT for 2016/2017 were up 20 percent from the previous week, but down 61 percent from the prior 4-week average. Increases were reported for South Korea (71,900 MT), China (68,200 MT, including 65,000 MT switched from unknown destinations), Colombia (50,400 MT, including 30,000 MT switched from unknown destinations), Peru (48,300 MT, including 45,000 MT switched from unknown destinations), and Mexico (47,600 MT, including 30,000 MT switched from unknown destinations). Reductions were reported for unknown destinations (260,800 MT) and Portugal (25,000 MT). For 2017/2018, net sales of 671,800 MT were reported primarily for Mexico (283,300 MT), unknown destinations (168,800 MT), and Japan (102,000 MT). Exports of 698,500 MT were down 28 percent from the previous week and 30 percent from the prior 4-week average. The primary destinations were Mexico (304,800 MT), South Korea (71,500 MT), China (67,000 MT), Colombia (46,900 MT), and Peru (38,200 MT).
Optional Origin Sales: For 2016/2017, options were exercised to export 68,000 MT to South Korea from the United States. The current optional origin outstanding balance is 54,000 MT, all unknown destinations. For 2017/2018, the current outstanding balance is 112,000 MT, all unknown destinations.
Barley: No net sales were reported for the week. Exports of 500 MT were reported to Taiwan (300 MT) and Japan (200 MT).
Sorghum: Net sales of 17,500 MT for 2016/2017 resulted as increases for China (73,500 MT, including 66,000 MT switched from unknown destinations) and Japan (10,000 MT), were partially offset by reductions for unknown destinations (66,000 MT). Exports of 69,300 MT were down 32 percent from the previous week and 28 percent from the prior 4-week average. The destinations were China (68,500 MT), Mexico (600 MT), and South Korea (200 MT).
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS prices are higher in light trading, despite continued weakness in corn futures. FOB ethanol plant prices rose to $112.34/ton, putting DDGS at 100 percent of cash corn values and 39 percent of Kansas City soybean meal. Both ratios are up from last week.
On the international front, prices for DDGS FOB U.S. Gulf were essentially steady, gaining $0.25/MT to end at $174.25/MT. This came despite a $1.50/MT decrease in Barge CIF NOLA values. FOB Gulf DDGS prices gained versus falling FOB corn prices, leaving the DDGS/corn price ratio at 101 percent. This is only the second time in 2017 the ratio has been above 100 percent, and DDGS still appear undervalued relative to historic norms.
CNF prices to Southeast Asia were mixed this week, gaining $1/MT on average. Prices for 40-foot containers to Japan and the Philippines increased, with smaller gains in other markets. Given the light trading that has occurred so far, it is likely international buyers are waiting for corn prices to stabilize and provide direction for DDGS before purchasing.
DDGS production for the 2016/17 marketing year is projected to increase 4 percent from last year, ending at 37.3 MMT. Based on the outlook for greater ethanol production in the 2017/18 marketing year, DDGS production will rise commensurately, reaching 37.6 MMT. According to the USDA ERS, 73 percent of DDGS are consumed domestically while the rest are exported. Given growing DDGS production and the financial pressure that is building for livestock producers in the U.S., DDGS exports will likely increase, both in volume and as a share of production, in 2017.
7. Country News
Argentina: Corn planted area will increase by 5 percent to 10 percent in the 2017/2018 marketing year, spurred by greater profitability than soybeans. Some estimate that production could reach 46 MMT, versus 40 MMT in 2016/2017. Corn planting, which starts in September, will also occur on 400,000 hectares of land that did not get planted to wheat due to weather. Fertilizer sales will be up by 8 percent.
Brazil: FS Bioenergia inaugurated the country’s first corn to ethanol plant. It will produce 240 million liters (63.4 million U.S. gallons) of ethanol each year. Agriculture Minister Blairo Maggi lamented that current corn prices do not cover the cost of production and noted that 10 such plants could consume 6 MMT per year. (Reuters)
China: January delivery of corn at the Dalian futures market hit 1,741 yuan/MT ($263.78), the highest close since April of 2016, largely on supply concerns. An August USDA/FAS GAIN report lowered China’s corn production to 210 MMT, a 5 MMT reduction from the Department’s July estimate. (Bloomberg; World-Grain)
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: This week’s uptick in Capesize vessel paper markets and rates combined with good grain freight demand from the U.S. Gulf and East Coast-South America provided support and higher values in Dry-Bulk markets.
Some corn sales have been made from Brazil to East Coast-Mexico. These were concluded a few weeks ago and calculated on a wide corn basis spread U.S. Gulf vs. Santos, Brazil, and with ocean freight rates of $21-$22.00/MT to Veracruz – versus relative freight from the U.S. Gulf to Veracruz at $13.00/MT. The current corn Basis FOB Brazil is considerably higher today, and the ocean freight spreads are a bit wider, so we will have to see if these sales ship as originally intended or get swapped out for U.S. Gulf corn. Export traders are anticipating that container shipping lines will install a $100/TEU GRI in October.
The improved freight markets have motivated some vessel owners to step back into the new vessel ordering game. If this continues the 2020 Dry-Bulk fleet will start growing again and the markets will be forced to punish everyone in the industry. Someone please tell owners to keep their hands in the pockets and their wallets closed to protect their investments.
The charts below represent YTD 2017 versus 2016 annual totals for container shipments to Indonesia.