THE markets were mixed last week heading into the Jan. 10 U.S. Department of Agriculture grain market report, while winter storms and frigid temperatures held prices fairly steady as domestic grain and oilseed transportation was stalled and livestock producers had a greater need for feed.
Mike Steenhoek, executive director of the Soy Transportation Coalition, said the storm did impose hardships on grain and oilseed transportation last week, with greater ice accumulation on the Illinois River as well as a longer turnaround time for railroads and truckers.
Steenhoek explained that increased ice formation and accumulation resulted in a narrowing of the navigation channel. The number of barges that can be lashed together to form a tow or flotilla was reduced, which meant lower efficiency and higher transportation costs.
He said soybean movement is particularly affected by such seasonal adverse weather because 80% of U.S. soybean exports occur between September and February. Steenhoek said when the South American soybean harvest comes online during February, March and April, U.S. soybean exports drop dramatically.
"It really is a critical corridor of time for fulfilling our commitments to our international customers," Steenhoek said.
Additionally, the storm caused a 24- to 72-hour rail service delay in many areas of the Midwest. Equipment malfunctions when loading and unloading grain and oilseeds and service delays meant fewer turns for locomotives and railcars, which is the equivalent of removing rail assets from a network. The round trip for a unit train of grain from Minnesota or Iowa to the Pacific Northwest usually takes 12 days. The storm lengthened the trips to as long as 18-22 days.
"The cold weather has really wreaked havoc on almost every aspect of the U.S. logistics system," Steenhoek added.
Waiting for WASDE
Despite December projections for increased U.S. corn use for feed and ethanol, USDA's Economic Research Service continues to forecast significantly higher U.S. and global corn stocks and lower prices for corn in 2013-14 (Figure 1).
Total U.S. corn production is projected to be 355.3 million metric tons, up 30% from the drought-damaged 2012-13 crop, while total use is forecasted to rise only 12% from 2012-13 levels.
Key sources of demand growth for corn in 2013-14 will be a 20% increase in feed and residual use and a 6% increase in the use of corn for ethanol production. Lower corn prices, combined with relatively high prices for ethanol and dried distillers grains (DDGs), have boosted ethanol production.
Even with increased use, U.S. ending stocks of corn are forecasted to be 45.5 mmt, more than twice the estimate of U.S. ending stocks for 2012-13 and accounting for nearly all of the expected rise in global stocks.
The U.S. corn price received by farmers for 2013-14 is projected to be $4.05-4.75/bu., with the midpoint forecast of $4.40/bu. down sharply from the record season-average price of $6.89/bu. in 2012-13.
In December, USDA's "World Agricultural Supply & Demand Estimates" (WASDE) report had China importing 7 mmt of corn during the current marketing year.
At least one leading industry analyst has suggested that China's corn imports this year will fall 30% short of the prior estimate, however, following China's rejection of U.S. cargoes over the presence of an unapproved genetically modified strain of corn.
U.S. Grains Council (USGC) president and chief executive officer Tom Sleight said the situation has interrupted the pace of U.S. corn exports but noted that USGC is actively engaged with China in order to resolve the issue.
Last week, the inspection pass rate for China's DDG imports was 40-50%, up from only 20-30% the week before, suggesting that China had already begun relaxing checks on the imports.
According to the Renewable Fuels Assn. (RFA), November 2013 DDG exports totaled a record 1.08 mmt, up 16% from October.
RFA also reported that U.S. ethanol exports have surged, as 82.4 million gal. were exported in November 2013.
Recently released government data revealed that large volumes of ethanol have been headed to new or emerging markets such as India and China, as well as the Philippines, Tunisia, Panama and Mexico. Total exports were up 54% from October, reaching the highest monthly level since March 2012 (Figure 2).
USGC reported that U.S. corn exports to Latin America continue to increase as well. According to USDA data, the Western Hemisphere's imports of U.S. corn are 67 million bu. higher than last year at this time. Mexico is the largest contributor of that increase, importing 39.4 million bu. more than last year. USGC credited the increase to trade policy efforts.
South American weather
While the corn market's prospects have changed significantly due to increased U.S. production, the Southern Hemisphere is the big story in the soy complex.
Recent yield-boosting rains in South America threatened to weaken soybean prices, but strong demand from China has kept prices generally favorable. In fact, USDA reported that close to 20 million bu. of additional soybeans were sold to China last week.
According to Rice Dairy chief feed grains analyst Jerry Gidel, U.S. soybean export sales, as a whole, are already higher than USDA's current projections, and U.S. export soybean meal sales are also very strong. He expected ending stocks to remain unchanged at 149 million bu. in the monthly WASDE update, while the trade generally expected the Jan. 10 report to show higher soybean crop numbers.
Lower corn prices have farmers planning for more soybean production, which will allow them to get normal crop rotations back into place after years of boosting corn production in response to record prices.
Farm Futures' latest survey of planting intentions showed that growers want to seed 82.34 million soybean acres, up 7.6% from 2013 and easily a record. If production is uneventful for both South America and the U.S., the increase in soybean production could result in sharply lower prices for 2014-15.
Ahead of the Jan. 10 WASDE report, market analyst Arlan Suderman reported that soybean traders were lightening their load of long positions, anticipating that USDA was going to raise South American production estimates in its report.
In regards to wheat, the market continues to weigh the damage to winter wheat plantings from last week's severe temperatures. While opinions on the subject were mixed last week, assessing any effect of the extreme winter weather will be difficult until the crop actually emerges from dormancy.
Chinese demand for soft red winter wheat is helping keep export demand strong, and high corn prices in 2013 increased domestic use of wheat for feed. Given those developments, 2013-14 stocks are expected to be the smallest in six years.
U.S. wheat production in 2014, on the other hand, is expected to increase, and foreign production is expected to remain high. Prices could decline to $6.00/bu. or lower in 2014.
For most of the week, markets were coasting with a slightly lower bias ahead of the Jan. 10 report. Corn closed sharply lower last Wednesday; however, as 2014 futures contracts set new lows, prices were able to recover somewhat by the close on Thursday.
Soybeans were relatively quiet, with only minimal price fluctuations. The Jan. 10 report was expected to determine whether crop prices can be stabilized or need to dip even lower to encourage additional demand in the face of burgeoning global stocks.