1. Chicago Board of Trade Market News
Outlook: About all one can say for corn futures is that they’re still there, dutifully providing price discovery and risk management options. Unfortunately, there just doesn’t seem to be much risk to manage. Trading volumes have been very light with little fundamental news to encourage position taking. Traders appear to be waiting for better harvest yield information before making judgements on corn’s supply and demand situation.
The U.S. corn harvest is off to a slow start. As of Monday’s Crop Progress report, USDA said 17 percent of the nation’s corn had been harvested, behind both last year and the five-year average (23 percent). Farmers were hoping to achieve better harvest progress but last weekend’s rains limited their ability to enter fields. Traders are expecting to see a sizeable jump in progress with next week’s report but so far haven’t put any risk premium in the market in case the jump isn’t realized.
USDA’s Thursday Export Sales report showed better than expected sales (the trade’s average guess was between 0.5-0.7 MMT) with 0.814 MMT sold. Exports of 0.966 MMT were better than expected as well but still leave YTD exports 41 percent behind last year. Exports will likely be slow this week as China is celebrating a week-long national holiday. U.S. exports look to be stifled in the near term while Brazil has the competitive advantage. However, the tides typically turn and favor U.S.-origin corn during the fall. With the weather issues in Brazil right now, that turning point may come sooner rather than later.
Going forward, December corn futures are unlikely to make any sudden movements until the October WASDE is released next Thursday. The contract is near its lifetime low which won’t be tested without strong fundamental reasoning. However, slow exports and large supplies will keep the contract from gaining any significant upward momentum. The December/March and March/May futures contract spreads show a bearish carry in the market and that sentiment is likely to prevail going forward.
3. U.S. Weather/Crop Progress
U.S. Drought Monitor Weather Forecast: During the upcoming 5-day period (October 5-9), a meandering baroclinic zone is predicted to bring 1-4 inches of rain (locally greater amounts possible) from New Mexico across the south-central Plains, the north-central Mississippi Valley, and Great Lakes region. This may be enough to warrant some improvements across Kansas next week, if this forecast verifies. Across the eastern half of the Gulf Coast region, 2-4 inches of rain are generally anticipated, but these amounts could be exceeded if Tropical Depression 16 (TD-16) moves into that region. As of 2 PM EDT, Oct. 4, TD-16 is located near the coast of Nicaragua. This scenario would certainly help with some of the dryness across Alabama.
During the 6- to 10-day period (October 10-14), odds for above normal precipitation are elevated above climatological odds from about the western slopes of the Appalachians to the Atlantic Coast, and over extreme southern Texas. This would be expected to at least offset additional degradation across this region. From about the Mississippi Valley westward to the Pacific Coast, sub-normal precipitation amounts are favored.
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 814,100 MT for 2017/2018 were reported for Mexico (190,600 MT), South Korea (119,600 MT), Colombia (116,700 MT, including 95,000 MT switched from unknown destinations), unknown destinations (115,300 MT), China (76,100 MT, including 65,000 MT switched from unknown destinations), and Honduras (65,300 MT, including 12,300 MT switched from unknown destinations). Reductions were reported for the French West Indies (8,300 MT). Exports of 966,000 MT were primarily to Mexico (401,500 MT), Japan (154,600 MT), Colombia (137,100 MT), South Korea (72,300 MT), and Peru (69,400 MT).
Optional Origin Sales: For 2017/2018, the current optional origin outstanding balance is 168,000 MT, all unknown destinations.
Barley: Net sales of 400 MT for 2017/2018 were reported for Taiwan. Exports of 400 MT were reported to South Korea (300 MT) and Japan (100 MT).
Sorghum: Net sales of 116,000 MT for 2017/2018 were reported for unknown destinations (66,000 MT) and China (50,000 MT). Exports of 300 MT were reported to Mexico.
6. Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS export prices are steady/lower as the corn market’s malaise reduces interest in forward contracting other commodities. U.S. exporters are reporting the Asian market has been very quiet with excitement over the Vietnamese market having faded somewhat. China, while not a major player in the DDGS market, is on holiday for this week which is reducing trading activity elsewhere in Asia.
Domestic U.S. prices have been steady with ethanol (and therefore DDGS) production increasing this week. Merchandisers are reporting near term inventory is almost all sold, leaving ethanol plants with little incentive to lower asking prices. Barge CIF NOLA rates are still increasing due to transportation issues along the Mississippi River, and rates for October barges to NOLA hit $161/MT this week. FOB Gulf prices are steady with last week for October shipment, but November/December shipments fell $1/MT. Prices for 40-foot containers destined for Southeast Asia were mixed but largely steady this week. Prices averaged $198.50/MT this week, nearly the same as last week.
USDA’s latest trade data shows U.S. DDGS exports YTD in 2017 hit 7.3 MMT, down 3 percent from the same period last year. Exports in August were 0.761 MMT, down 24 percent from July 2017 and down 66 percent from August 2016. The year-over-year change fails to reflect the true robustness of the U.S. export program, however, because exporters have overcome additional challenges this year. Thus, a DDGS export program nearly equal to the prior year shows the true value and competitiveness of U.S.-product on the international market.
7. Country News
Middle East: Saudi Arabia tendered for 540 KMT of barley and Tunisia tendered for both barley and durum wheat. (Reuters)
Russia: Russian Agriculture Minister Alexander Tkachev says that railway transport of grains will be subsidized beginning in October. (TASS)
Vietnam: Imports of feed ingredients from Argentina are up 4.92 percent this year and imports of corn have risen 64.66 percent in volume and 59.83 percent in value. (Thai News Service)
9. Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: It seems a bit amazing that the Baltic Dry-Bulk freight indices can move up and down by 300 to 600 points per day, even in relatively quiet markets. But I guess that is just evidence of the amount of paper trading that takes place as it does not directly correlate with the degree of rate movement in the physical markets.
This week’s market action saw a continued softening in the Baltic Indices and some slightly lower priced physical vessel fixtures. At week’s end the market is trying to stop the slide and recover slightly; probably with the hope that things will improve once the Chinese return from the golden week holiday. We are of course in full swing with the North America corn and soybean harvest, and vessel demand from the U.S. Gulf is increasing daily.
A note regarding the Panamax Dry-Bulk Ocean freight rates for corn or soybeans to HCMC, Vietnam: The appropriate market spreads on this route are not necessarily a direct thing to rate. If you are going from the U.S. Gulf via the Cape of Good Hope, the steaming time to Vietnam (versus N. China) is shorter, so that freight would be a little cheaper. However, routing via the Panama Canal, the distance is longer and thus more expensive. So, on average maybe it is best just to say that the rate from the U.S. Gulf to Vietnam is about the same as to Northern China (give or take $1.00/MT depending on routing). The freight spread between N. China vs S. China is generally a $1.00-$1.50 difference. Close to 90 percent of the Panamax vessels going from the U.S. Gulf to China are currently going around the Cape rather than thru the Panama Canal.
The charts below represent YTD 2017 versus 2016 annual totals for container shipments to Taiwan.