End-Users More Actively Seeking Alternatives To US Corn

March 14, 2013 01:27 AM

What Traders are Talking About:

* China buys Indian corn. In a rare move, China bought 13,700 MT of Indian corn "on a trial basis," according to export sources. The corn is for April shipment as Chinese buyers seek alternatives to U.S. corn given high prices and tight supplies. If this shipment passes quarantine inspections, it would likely clear the way for additional Chinese purchases of Indian corn. But as we've seen in the past, it's not easy for corn shipments the clear Chinese inspections.

The long and short of it: China's interest in shopping around for corn signals they are concerned about being able to acquire U.S. supplies at an acceptable price.

* Others seeking alternatives to U.S. corn. Last week news broke that POET was seeking SRW wheat for some of its ethanol plants in the eastern Corn Belt due to tight corn supplies. This week, POET inked a deal to supply its largest South Dakota ethanol plant with sorghum. And yesterday, USDA announced a daily export sale of 114,300 MT of sorghum to an unknown destination. There have also been multiple reports of increased wheat feeding due to more attractive wheat prices and tight corn supplies. End-users are more actively seeking alternatives to U.S. corn due to tight supplies.

The long and short of it: Global and domestic end-users have been seeking alternatives to U.S. corn since last summer, but their efforts have picked up steam recently. While tight old-crop supplies are supportive for corn, the erosion of demand is just as (if not more so) damaging. As I've said multiple times before, tight old-crop supplies are mostly a cash market issue.

* Cotton market on fire. Cotton futures have increased nearly one-third in value since November, with the May contract reaching its highest level since May of last year and the highest mark for a front-month contract since June of last year. The last six weeks of price strength coming in the face of a sharp rally in the U.S. dollar. The combination of rising cotton prices and a firming dollar have pushed U.S. cotton prices sharply higher on the world market, but so far, there have been no signs of a significant letup in export demand. Meanwhile, China is currently sitting on a record 10 MMT of state-owned cotton reserves -- roughly 60% of world supplies. Chinese mill demand for state-owned cotton is expected to increase sharply over the next five months, which would curb demand for imported cotton.

The long and short of it: Export demand will signal when cotton prices have risen "far enough." When that signal comes, it will be time to make old- and new-crop cotton sales.


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