Corn Update 05/17/13 3:38:48 PM|
|All information provided by Advanced Trading and the ProExporter Network|
· Old crop supply concerns moving to the forefront; trade expecting some good progress numbers on Monday: CN, Up 12-13; CZ, Down 1-2
· Informa reduces corn acreage by 1 million, down to 96.8, ½ million below the USDA
· Trade expecting 60-65% planted on Monday; remains well behind 5-year average of 82%
· BA Grain Exchange keeps crop estimate at 24.8, harvest moves ahead 5 points to 46% complete, 7 behind LY
· Brazil corn vessel count down 1 to 6; volume estimated at 7.6 mbu
· Some suggesting a record week-to-week increase in corn planting is possible, perhaps reaching 65% by Sunday
· T-storm Weather: Areas of rain and thunderstorms affect the central U.S. tonight--primarily across the Northern Plains and northwest Corn Belt. Additional thunderstorms focus on the Corn Belt Monday-Tuesday
· National Weather Service forecasts equal chance of above- or below-normal precip for Midwest in June-August
· ATI Research: Corn usage trends can vary significantly from initial May WASDE projection, with weather and consumption/export trends in China key factors to monitor
Planting progress was interrupted in central/southern IL by overnight showers, but planting in spots restarted around noon, except along I-72 and south were soils are wetter and showers flared mid-morning then dissipated. Expectations in the trade appear to be 60-65% planted by Sunday vs. 5-year average of 80%.
· Despite rain in the immediate forecast, pressure from rapid planting the past couple of days: CN, Down 7; CU, down 6 ½ CZ, Down 5 ¾
· Old crop corn sales were decent at 8.7 (6-10 expected/need 5); new crop light at 1.5. Only 400 K milo sold
· Brazil corn vessels increase 1 to 7 with volume approaching 9.5 mbu
· September Chinese corn futures gained ¾’s of a cent to settle at $10.07 ¾
· Weekly Export Sales Report released at 7:30 AM CDT. Trade expects 6-10mbu old crop corn against 5.1/wk needed; new crop range also 6-10. Milo sales need to average 1.3 per week
· Weekly ethanol grind increases 14 thous barrels to 857 thous, which is also down 5% vs. last year’s 904 total
· T-storm Weather: Widely scattered (not widespread) thunderstorms affect parts of central U.S. through Fri. with highest coverage most likely in/near northwest Corn Belt, southeast Corn Belt & between Delta & S Plains
· National Weather Service to release updated U.S. Seasonal Drought Outlook through August at 7:30 AM CST
Cash corn basis was a little weaker today. Great planting activity reported on most all fronts, and the weather forecast, while a concern, seemed to indicate extending planting an extra day or so this week for some. Similar news for northeast China which was too wet earlier, reported some decent planting progress on corn this past week. Broiler egg sets for 5/11 were up .7% from LW and are 1.2% below LY as producers appear to be restrained from increasing production despite near record high broiler prices. The EIA weekly ethanol data while showing a production response,+14kbpd to 853kbpd, was not enough to keep inventories from falling .4 mln bbls to 16.4 mln bbls; the lowest inventory level since November 2011 when we saw a spike in margins over $1/bu occur briefly in some regions. US etoh imports at zero reflected the Arb from Brazil being closed to imports, and we continue to export ethanol although EIA doesn’t track that on a weekly basis. Much has changed in the past two years from production capacity gains in etoh to weaker gasoline demand, but the timing and volumes of corn and/or etoh imports from South America to the US will have a significant influence on the ability for strong ethanol margins to roll through the backwardation in corn. Interestingly, nearby ethanol responded modestly to the tighter EIA inventories, closing below yesterday’s levels; the trade seems to be expecting a production response or arb opening soon, just when remains a bit of a mystery. Corn ethanol plants can go through the inverse presuming the backwardation in corn will eventually be made up by ethanol prices, and recent history is on their side.
− USDA/WASDE report this past Friday had little for surprise. It did show small glimpse into next
year’s carry-out. USDA cut exports by 50 mln bu and increased ethanol grind by 50 mln for a net
change of 0 to carryout of 759 mbu for 12/13.
− ATI‘s ending stocks estimate is 818 mbu carryout vs 740 mbu lw. We added 50 mbu to imports
and cut ethanol demand by 28 mbu.
− Planted acres were left unchanged at 97.3 with 89.5 harvested despite slow start.
− Yield was trimmed 5.6 bpa from the forum number (163.6) to 158. ATI is still assuming a 155
bpa. Based on slow progress of planting.
− One of the more interesting ideas from the USDA came with a 7.3% increase (1 bln bu) in world
coarse grain consumption. That increase was not as much China driven as we would assume. If
you consider a 700 mbu decrease over the previous year, the 1 bln bu increase really makes up
for lost demand with only an increase of 300 mln bu. Typically in a recovery year like that we
would forecast a 4% rebound. So the 7.3% is still fairly optimistic.
− Spot Ethanol margins are strong (35c to 40c), June margins are 10c to 15c and July are
breakeven to slightly positive.
− Rumors are circulating that 6 to 8 vessels are getting imported of ethanol. The arb is currently
closed. Importers are anticipating the inverse to roll forward. Ethanol importers are making
purchases for June and hoping by the time the boat shows up the inverse has rolled forward.
− General thoughts are June is covered for corn/milo needs, July is only partially covered.
Question was asked if margins are positive why aren’t ethanol plants locking in that crush?
Some ethanol plants have seen deferred margins improve as they progressed. Thus giving them
a bullish feeling to the market and not wanting to miss an “opportunity” they are willing to
expose themselves to the volatility by legging into corn purchases without selling ethanol.
− Planting progress should improve dramatically this week. SD improved by 30% last week. How
quickly can we catch up?
· Tight supplies/likely slow start to harvest supports old crop; new a little weaker on improving planting outlook: CN, Up 2; CZ, Down 2 to 3
· Japan searching for alternative corn origins; said to have bought 200+ K MT of South African corn with U.S. uncompetitive until fall and Brazil coping with up to 6-week shipping delays
· Brazil corn vessel count remains at 6, 7.8 mbu. Ag Min says bill to improve port capacity likely to be oked
· Indian attaché raises 12/13 corn export forecast by 1 to 4 million MT; 13/14 seen at 3, greater feed/fsi
· When exchange rate adjusted, September Chinese corn futures settled 3/4’s lower at $10.07
May corn closed a little stronger, hitting that $7 mark, as lack of farmer movement, strong basis levels, and continued wet weather prompted short covering from the large specs. Basis levels were steady to firmer, especially western markets, as competition for June/July coverage and the feeling that truck bushels (commercial and farmer) might be harder to cover in than rail coverage.
U.S. Corn Exports Plummet Since Record Peak Five Years Ago
Summary: After peaking at more than 2.4 billion bushels five years ago, U.S. corn exports have plummeted by more than 67% to just 800 million and that number could decline further. The steep drop in exports is another example of the adage that “high prices cure high prices” with corn output in Brazil helping that country become the top shipper in the world. China is always a wild card to monitor and each year holds surprises but only a modest rebound in U.S. corn exports for the 2013/14 crop year appears likely at this time
On the heels of the 2012 drought, corn prices reached historic highs at well over $8.00. That had some impact on usage, however, with probably the most pronounced effect being seen on exports. As recently as the 2007/08 crop year, U.S. corn exports reached a record high of more than 2.4 billion bushels. Shipments stabilized at 1.8-1.9Bbu for the following three years before dipping to 1.5 in 2011/12. What’s important to note is that competitors have responded to high corn prices by increasing production. The most glaring example is Brazil, where harvested acreage increased 20% over the past three years to more than 38 million acres for this year. At present, the USDA is forecasting that Brazil will be the world’s top exporter in 2012/13 and it’s quite possible that Argentina could also eventually surpass the U.S.
This is a good example of the adage that “high prices cure high prices”. In this case, the surge in corn prices experienced the past few years has (1) encouraged users to increasingly substitute cheaper-priced feedgrains (e.g. wheat) for corn and (2) encouraged foreign producers to increase planted area. Looking ahead, Brazil is forecast to harvest another record crop this spring, which could result in ongoing competition for U.S. export shipments throughout the remainder of calendar year 2013 and possibly into early 2014. China is always a wild card to monitor and each year holds surprises but only a modest rebound in U.S. corn exports for the 2013/14 crop year appears likely at this time.
· T-storm Weather: Areas of rain/snow focus on Delta & heart of Corn Belt next several days. Drier conditions then evolve west to east through Wed-Thurs. Possibility exists for new rain system to develop late next week
· National Weather Service updated U.S. Seasonal Drought Outlook released Thursday forecast additional improvement in drought conditions for western Corn Belt through July
· ATI Research: Reasonably good old-crop corn export sales of 13.0mbu, new-crop was a hefty 25.8. Good to see some pick-up in export demand but recent old crop sales of 12/week is only about 1/3rd the 5-ytear avg.
· May corn futures traded to $6.99 ¼ on Thursday, which is the highest level since March 28
Snow in April across Neb and Iowa, and producers to the east expecting rain to curtail field work soon. The US seasonal drought index continues to show improvement in the WCB, with the TX/OK Panhandle being the exception where drought may intensify. Flood warnings up along the IL and Mid Miss. GPRE earnings conf call suggested they will continue to build temporary corn space 8mbu TY and NY at their plants, some Brazil etoh will come into Calif to help comply with LCFS policy, but worst case the US etoh import/exports balances to a net even, best case the US remains a net exporter of etoh—all in all positive outlook for the industry and lastly that no revisions to RFS-2 should be expected (ADM agreed separate conf call and added they are returning to full capacity operations due to positive margins) due to Whitehouse support for the policy Murphy Oil earning call said their two etoh plant investments were not strategic and may sell them sometime in the future.
· Late summer supply concerns, wheat/corn feed issue, planting delays lift corn higher: CK, Up 11-12; CN, Up 11-12; CZ, Up 5-6
· Export Sales: 12/13 corn respectable at 8.1 but still short of the 9.7/wk needed. Impressive 13/14 # at 25.8 with China and Unknown reporting a combined 23.4 mbu. Milo weak at 43 K, need to sell 1.2 mb/wk
· U of I Ag Economists suggesting C IL highly productive land has lost 1.5% of top end yield potential if not planted by this weekend. Add another week, and take 3.5% off. Rough #’s but might USDA use 158 bpa instead of Ag Forum’s 163.6 assumption in May S&D?
Export Sales Notes
Week Ending 04/25/2013
CORN SALES— Reasonably good for old crop at 13.0 TW; 12.4 LW; 52.4 LY; 10-14 Expected; 8.1 Needed. YTD: 659 mbu TY; 1,469 LY. O/S: 166 TY; 400 LY. New crop sales were a hefty 25.8 mbu TW against 800 K LW and versus 84.3 LY with the trade thinking in the 20-28 range. Japan bought 4.2 million old crop; Mexico, 3.7; Unknown, 3.4; Colombia, 827 K and Venezuela, 787. Trinidad and Honduras cancelled a total of 705 K bu. New crop buyers included China, 11.8; Unknown, 11.6; Japan, 1.8 and Trinidad, 559 K bu. Good to see some pick-up in export demand but recent sales of 12/week (old crop) is about 1/3rd the 5-year average.
MILO SALES—Light at only 43 K bu TW; 4.2 LW; 300 LY; 1.2 Needed. YTD: 58 TY; 26 LY. O/S: 18 TY; 4 LY. New crop sales were again nil, against 0 LW and 0 LY. Japan was the sole buyer.
July corn gave up a few cents on the day, but it is still 27 cents higher than it was over the weekend. Reasons cited for the weakness on Wednesday included: a slightly lower China PMI number, a slightly better weather outlook, and some optimism regarding planting that has taken place the last few days as temps warmed up quickly in many areas. Winter Storm Achilles may squelch some of that optimism as Minnesota, western Wisconsin, Iowa, southeast S. Dakota, Nebraska and Kansas all face potential snowfall from the winter storm. Already we are hearing the likelihood of acreage reductions in some areas, and the later it gets, the harder it is to build a case for 162 bpa trend line national average yields. At the end of this rabbit trail of market emotion there’s a thing called carryout. In 2011/2012, the carryout was 989 mbu. In the spring of 2012, the hope was for a huge crop and a carryout of 1500 to 2000 mbu in 2013. Weather was a game changer, and instead of going up, carryout decreased from 2012 to 2013. So here we are in the Spring of 2013, and again there are many looking for carryout to increase in 2014 (our own ATI Fundamental Review shows a projected average yield carryout of 1956 mbu). This scenario would be beneficial to many sectors of the grain trade, so it is natural for us to “wish” it, and it is natural for us to be optimistic. But it is May 1, planting progress is well behind average, and a winter storm is bringing snow/rain/cold to many parts of the corn belt in the next several hours. Starting to feel like a 14.5 bbu crop is a reach.
· Larger than expected build in crude oil stocks, up 6.7 mb and versus an average estimate of only 800 K. Weekly ETOH output reported a ½% higher, grind up ½ mbu; annual grind now 78 mbu above USDA. Ethanol inventories decline by 556 K and are now 5.2 mb below the same week 2012 level
· Acreage worries in the NW Corn Belt increases; hearing estimates between a ½ to 2 ½ million switch/loss
· Scattered reports of corn planting underway in various parts of Central Illinois