Market Perspectives December 21, 2017

1. Chicago Board of Trade Market News

Week in Review

Outlook: March corn has been in a consolidation pattern around the $3.50 mark and today was no exception. The contract finished 2 cents higher and just above $3.51 as traders perceive such prices to be near the market’s fair value. Without much bullish or bearish news to push trading one way or another, trading activity continues to lighten ahead of the holidays. There is some position squaring ahead of the holidays with shorts seemingly always nervous about leaving their position on over the Christmas/New Year period. 

U.S. export sales for the week were strong at 61.3 million bushels, but exports were only 27.6 million, leaving YTD shipment volumes down 36 percent. This week’s dynamic of sales exceeding the pace needed to meet USDA’s projections and shipments falling short of the same mark reflects the 2017/18 corn crop’s entire story so far. The U.S. export program has faced significant competition from South America; U.S. corn sales as a percent of USDA’s forecast have reached only 52 percent so far this year, versus 59 percent normally. 

Despite the slowness in corn sales, U.S. sorghum exports are soaring. So far, the U.S. sold 17.2 million bushels this week, bringing the YTD totals to 158.4 million bushels. China has been the largest buyer of U.S. sorghum and their current purchase pace could bring U.S. stocks to very tight levels. USDA has already lowered its forecast of sorghum use for industrial and feed purposes given the export pace thus far. 

From a technical perspective, March corn futures are range bound but with pre-holiday momentum building to the upside. Funds are still heavily short corn and will likely reduce their exposure heading into the new year. While the South American weather pattern remains mixed and generally non-threatening to the Argentine corn crop, the risk of a significant shift in the forecast over the holiday weekend will keep the mild short-covering rally going.

2. CBOT Corn Futures

CBOT March Corn Futures

CBOT Corn Futures

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

U.S. Drought Monitor Weather Forecast: Over the next week, beginning Tuesday December 19, a good deal of much needed precipitation is forecast to fall across much of the South and the eastern United States. A swath from eastern Texas to North Carolina, most of Kentucky, and southern Virginia are expected to receive between two and six inches of precipitation. Heavy precipitation is also forecast for the Pacific Northwest, northern Idaho, western Montana, and parts of the Northeast. Dry conditions will likely continue across the Southwest and parts of the southern Plains, where drought conditions prevail. Warm temperatures in the South at the beginning of the week will be replaced by cold air sliding down from the north. 

Looking further ahead at NOAA’s Climate Prediction Center (CPC) 6- to 10-day Outlook (December 24-28), the probability of dry conditions is highest in the Northwest and Midwest, while wet conditions may occur over New Mexico, southeastern Colorado, and Texas, and stretching across the much of the South and along the East Coast. During this period, below-average temperatures are expected over nearly the entire contiguous U.S., except for parts of the Mid Atlantic along the coast and the Southeast, including Florida. Looking two weeks out (December 26-January 1), the cold temperatures are expected to continue, except in Florida and the Southwest. The probability of above-average precipitation is highest over parts of Montana and Texas, while below-average precipitation is most likely in the Northwest and much of the northern U.S. from the Northeast to the eastern Dakotas. 

Follow this link to view current U.S. and international weather patterns and future outlook: Weather and Crop Bulletin.

4. U.S. Export Statistics

US Export Sales and Exports
US Export Inspections
USDA Grain Inspections for Export

Corn: Net sales of 1,558,300 MT for 2017/2018 were up 80 percent from the previous week and 82 percent from the prior 4-week average. Increases were reported for Mexico (381,500 MT, including decreases of 25,000 MT), unknown destinations (296,600 MT), Colombia (167,100 MT, including 20,000 MT switched from unknown destinations), Japan (151,300 MT, including decreases of 3,100 MT), and Costa Rica (134,500 MT). Reductions were reported for the French West Indies (7,100 MT). For 2018/2019, net sales of 2,300 MT were reported for Canada. Exports of 701,900 MT were up 2 percent from the previous week and 7 percent from the prior 4-week average. The destinations were primarily to Mexico (311,500 MT), Japan (147,500 MT), Saudi Arabia (73,600 MT), South Korea (61,400 MT), and Colombia (40,600 MT). 

Optional Origin Sales: For 2017/2018, new optional origin sales of 92,000 MT were reported for unknown destinations. The current optional origin outstanding balance is 657,500 MT for South Korea (342,000 MT) and unknown destinations (315,500 MT). 

Barley: Net sales reductions of 1,600 MT resulted as increases for Taiwan (700 MT), were more than offset by reductions for Japan (2,300 MT). Exports of 900 MT were primarily to Japan.  

Sorghum: Net sales of 438,100 MT for 2017/2018--a marketing-year high--were up 38 percent from the previous week and 27 percent from the prior 4-week average. Increases were reported for China (378,100 MT, including 66,000 MT switched from unknown destinations) and unknown destinations (60,000 MT). Exports of 252,400 MT were up noticeably from the previous week and up 60 percent from the prior 4-week average. The destinations were China (251,900 MT) and Mexico (500 MT). 

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: DDGS prices continue to work their way higher, though gains moderated from last week. Merchandisers are reporting supplies are not as tight as a few weeks ago but demand remains strong, particularly for Gulf product. FOB ethanol plant DDGS increased $0.75/ton on average this week to their last quote of $130. Domestically, DDGS are priced at 45 percent of Kansas City soybean meal and 117 percent of cash corn values. On a per-protein unit basis, DDGS are $0.88 cheaper than soybean meal. 

DDGS CIF NOLA barge prices fell this week even as FOB NOLA DDGS gained $3/MT to end at $203/MT. The diverging price trends between these two destinations may indicate a period of stability coming for DDGS prices in the U.S. FOB NOLA DDGS are valued at 59 percent of FOB NOLA soybean meal and 130 percent of FOB NOLA corn. DDGS delivered via rail to the PNW ended $3/MT higher at $220 this week. 

On the international front, Asian prices are firm with active demand for nearby shipments. Some traders are claiming Vietnamese buyers are looking to buy January-March shipments. With other Asian prices heading higher, sellers are yet unwilling to lower asking prices. The average price for 40-foot containers destined for Southeast Asia reached $222/MT this week, with buyers paying $3/MT more on average. Prices for product to Taiwan, Japan, and Bangladesh led the way, rising $4/MT while all reported destinations increased at least $2/MT. 

7. Country News

Argentina: About 60 percent of the central farm belt received ample rains last weekend. Although Eduardo Sierra of the Buenos Aires Grain Exchange says it “did not totally solve the [moisture] problem,” it provided enough for continued planting. More rains are in the forecast. (Reuters) 

Brazil: The grain agency Conab predicts that Brazil’s corn output will be 5 MMT lower this year than in 2016-17. Output is forecast at 92.2 MMT. (Reuters) 

China: Heilongjiang is China’s largest corn producing province and it has cut production area by nearly one million hectares this year. Overall corn production area in China is down 1.33 million hectares in 2017, though earlier this month the Ministry of Agriculture raised its corn production forecast for 2017/18 crop year to 116 MMT. (Reuters) 

Myanmar: After suspending corn imports earlier this year following imposition of new pest risk analysis requirements, Myanmar’s Plant Protection Division has now accepted the submissions made by the U.S. and is again allowing imports from the U.S. Myanmar’s livestock sector is expanding and its imports of corn and DDGS are expected to grow as a result. (Reuters) 

Russia: After receiving a request from Russian Deputy Agriculture Minister Sergei Levin, Saudi officials are now allowing two Russian companies to register and compete on import tenders for barley. (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: All the shipping news wires this week have the same verbiage: “Markets are slow and quiet.” This of course is code for “we are in holiday mode and the markets are soft.” The end of the year is always like this and the trick is to determine the market’s attitude once everyone returns from the holidays in January. Keep in mind, however, that the first quarter of any year is usually the slowest period and therefore the low end of the annual rate structure. I don’t expect to see anything different this year. Q1 2018 will likely be a bit softer than Q4 2017, but then we will probably start to see an uptick in rates as we move farther into the balance of the year. Higher freight rates will not harm traders but will directly impact market bids to farmers. 

Given the higher dry-bulk rates verses containerized grain rates from the U.S. to Asia, I do expect to see a slight increase in the percentage of containerized grain sales in 2018.

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 Vessel Pricing
US-Asia Market Spreads

The charts below represent YTD 2017 versus 2016 annual totals for container shipments to Taiwan.

Container Shipments 1
Container Shipments 2
Freight chart 1
Freight chart 2
Freight chart 3

10. Interest Rates

Interest Rates