Printable Page Corn News   Return to Menu - Page 1 2 3 4 5 6
 
 
Market Matters Blog           08/24 13:10
Louisiana Flooding Affecting Transportation, Crops
Ag Shippers Push ILWU, PMA to Discuss Contract Extension
The Other Winter Wheat
STB Proposes Rule to Provide Competitive Rail Service
Freight Costs Rise as Large Crops Loom 
US New Crop HRW Protein Disappointing 
Volatile Markets Require a Long-Term View
Cash Market Moves -- Weaker Cash Price Not Helping Basis to Rally 
SOLAS Update; OCEMA Members to Accept Marine Terminal Weights
DTN's Brexit Vote Coverage

******************************************************************************
Louisiana Flooding Affecting Transportation, Crops

   Louisiana has been under siege for weeks from torrential rains causing 
catastrophic flooding as harvest neared. Crops are waterlogged in flooded 
fields, some rail lines were under water and roads closed, making transport of 
grain (or anything) difficult. Still, the effect on grain basis has been 
marginal, as basis had started to weaken along the river before the floods.

   Ronnie Levy, LSU AgCenter soybean specialist, told Delta Farm Press on Aug. 
16, "It's such a shame, really, because we had an excellent crop. It's hard to 
take. It probably wouldn't have been the record, but USDA had us pushing 50 
bushels and that would have been second best ever."

   Mike Strain, Louisiana Agriculture and Forestry (LDAF) commissioner, told 
Delta Farm Press on Aug. 17, "I've been on the phone with my federal 
counterparts daily. We're doing analysis of the situations on our farms and 
grain elevators. There are teams currently on the ground assessing the damage. 
It usually takes several weeks after floods have fully receded for our federal 
counterparts to have a full analysis of crop damages. We're very concerned a 
lot of our rice and soybeans won't be harvested."  

   AT THE GULF

   Tom Russell, co-owner of the Russell Marine Group, told DTN that while 
weather forecasters did not report the recent rains as a tropical storm, it had 
all the features of one, minus the winds. "It dropped a lot of rain mostly 
north of NOLA (New Orleans). That area has a lot of small rivers that jumped up 
fast and caused the flooding.

   "Bayou Sorrel (aka Port Allen Route) is closed due to high water for the 
next week or so. Bayou Sorrel route hits Mississippi River at Baton Rouge. The 
alternative New Orleans route is still open. The New Orleans routes hit the 
Mississippi River just south of the 'grain corridor' where most elevators are 
located. It is a little longer route but works.

   "I know there is some high water on upper areas of the Illinois River but 
not near flooding. All rivers look like they will have a short-lived bump from 
recent rains but levels are safe. My big concern is tropical storm/hurricane 
activity for the second half of August and the first half of September. Most 
forecasts agree that it will be active in the area this year."  

   UP RIVER

   Shippers up river are seeing a mixture of issues. Kent Hamm, buyer for the 
DeLong Company in Minooka, Illinois, told DTN, "Basis is much weaker in our 
area at the Illinois River on corn. I have heard that lower basis has been the 
recent result of Gulf elevator capacity at the CIF export houses. In talking 
with a grain merchant yesterday at Ottawa, he said his contracts to arrive were 
as small as he's seen since the spring and he had enough empty barges in front 
of him for the week.

   "CIF basis had weakened before this big rain event. I believe all the 
importers are waiting for new-crop cheaper supplies," added Hamm.

   A farmer near Rock Port, Missouri, told DTN the elevator there had long 
truck lines and was filled up because the train was late in getting to the 
facility. "The shuttle train showed up a day late. However, as far as I know, 
the only thing affecting basis right now is supply and demand. Everyone seemed 
to be sitting on a couple of bins of corn they all decided to move at once."

   As for elevators in the flooded areas of Louisiana, DTN was unable to 
collect daily grain bids from some of the elevators we normally contact.

   Road closures stalled truckers from getting loads to and from their 
destination and the Kansas City Southern Railroad had to close a mainline due 
to water running over the tracks.

   In a statement released Aug. 19, the KCS said, "As previously communicated, 
excessive rains caused flooding in the South, resulting in a federal disaster 
area declaration for Louisiana as well as a declaration of states of emergency 
for both Louisiana and Mississippi. On Tuesday, Aug. 16, flood waters rose 
above our tracks on the mainline between Reserve, Louisiana, and Baton Rouge, 
Louisiana (MP 819), resulting in the closure of the line. Although resulting in 
delays, detours are in progress for the impacted carload customers. Crews 
remain in the field both on this mainline as well as the other hard-hit areas 
in the south and are monitoring the situation."  

   Looking ahead, the weather news is not encouraging. DTN Senior Ag 
Meteorologist Bryce Anderson said late Friday, Aug. 19, "Heavy rain has eased 
up in Louisiana, but there will still be light to moderate showers throughout 
the next week to 10 days. There's not a completely dry day indicated until 
Monday, Aug. 29."

   Information regarding road closures and reopenings in Louisiana can be found 
here at the Louisiana DOTD website: http://goo.gl/WOh15p  

   Mary Kennedy can be reached at mary.kennedy@dtn.com  

   Follow her on Twitter @MaryCKenn 

******************************************************************************
Ag Shippers Push ILWU, PMA to Discuss Contract Extension

   Agriculture product shipping groups are urging the International Longshore 
and Warehouse Union and Pacific Maritime Association to begin contract 
negotiations to avoid another labor dispute like the one in late 2014 and early 
2015 that disrupted operations at West Coast ports. That dispute affected the 
container industry, which relies on the West Coast to ship goods, including 
agricultural products.      

   On Aug. 11, more than 100 delegates from 30 West Coast ports from San Diego, 
California, to Bellingham, Washington, who were elected by rank-and -file 
members of the International Longshore and Warehouse Union (ILWU), convened 
during the week to consider an employer request to discuss the possibility of 
an extension to the 2014 to 2019 collective bargaining agreement between the 
ILWU and the Pacific Maritime Association (PMA), according to a statement on 
the ILWU website.

   That's good news for shippers who fear a repeat of what happened two years 
ago. In July 2014, a contract agreement between the ILWU and PMA expired. The 
two sides remained at an impasse from late 2014 to early 2015, resulting in 
slowdowns at West Coast ports that caused significant disruptions and cost 
millions of dollars for many industries importing and exporting from the 
region. Finally, on Feb. 20, 2015, the PMA and ILWU ended the nine-month-long 
contract dispute, reaching a new five-year contract agreement, which involved 
29 ports from San Diego to Seattle. The nine months of stalemate crippled the 
container industry, which relies on the West Coast to ship their goods, 
including agriculture products.

   Mike Steenhoek, executive director of the Soy Transportation Coalition 
(STC), told me while soybean and grain exports via container from the West 
Coast were affected, "the more detrimental to agriculture was the impact on 
U.S. meat exports, which are exported via refrigerated container and, due to 
their perishable nature, cannot withstand significant delay along the supply 
chain. The domestic livestock industry is our most important customer. Any harm 
absorbed by the livestock industry will be felt by those soybean and grain 
farmers producing the food the animals consume. The West Coast port disruption 
was such an example."  

   Midwest Shippers Association (MSA) Executive Director Bruce Abbe gave DTN a 
copy of a letter sent Aug. 8 by a coalition of business and container shippers, 
including MSA and STC, to the heads of the ILWU and PMA urging them to begin 
negotiations on a new contract/contract extension. You can read the full letter 
here: 
http://www.dtn.com/ag/assets/Multi-Industry_ILWU-PMA_2019_Negotiations.pdf   

   "The two party's leaders have made some sounds in the recent past that they 
may be willing to do this," Abbe said. "ILWU leader said at the JOC conference 
last spring that if they got a letter requesting that they engage in early 
negotiations, he would bring it to his members. So it's worth the effort."  

   "If nothing else, we feel a strong need to keep shippers -- particularly us 
ag export shippers -- directly pushing where we can to try to prevent another 
congestion meltdown like a year-and-a-half ago that was so economically 
damaging to the macro economy all the way down to countless small companies 
that have banked their business and customer supply chains on having reliable 
container shipping service," Abbe said. "Right now, the customer shipping 
community has no direct role, even observatory role, in those labor 
negotiations. Maybe we should."

   The service disruption at the West Coast ports diminished the U.S. 
reputation as the most reliable exporter in the global marketplace. "It has 
also been the concern of many industries, including agriculture, that the 
current detente between the ILWU and the PMA will be temporary -- particularly 
with the current contract expiring in a few short years. It is therefore 
welcome news that the ILWU may consider commencing negotiations with the PMA to 
extend their contract," said Steenhoek.  

   Steenhoek noted that the West Coast is a prominent and irreplaceable link in 
our logistics chain, and is not the only option for many industries. "The 
recent expansion of the Panama Canal, the increased utilization of the Asia to 
East Coast route via the Suez Canal, and expanded export terminals along the 
West Coast of Canada have provided needed competitive pressure on the West 
Coast. Industries and companies, in agriculture and beyond, continue to explore 
diversifying their supply chains so that fewer eggs are in the West Coast 
basket. If the ILWU and PMA desire to preserve their position in the global 
economy, providing greater predictability for those who utilize West Coast 
ports would be a welcome first step."

   "We are encouraged by this development and strongly support any step that 
will result in a more long-term contract between the two parties," Steenhoek 
said. "Such a contract extension will provide greater predictability of the 
supply chain for those industries, including agriculture, that depend upon West 
Coast ports."

   Mary Kennedy can be reached at mary.kennedy@dtn.com 

   Follow Mary Kennedy on Twitter @MaryCKenn

******************************************************************************
The Other Winter Wheat

   The discovery of genetically modified wheat plants in a Washington state 
field recently prompted South Korea and Japan to temporarily halt imports of 
U.S. wheat, which sent the cash price of Soft White Wheat falling right in the 
middle of harvest.  

   In its July 2016 Wheat Outlook, USDA's Economic Research Service reported 
2016 SWW production was forecast to rise 20.2% to 202.3 million bushels with a 
yield of 69.9 bushels per acre. Total white winter wheat production (SWW and 
hard white winter) for 2016 is forecast to total 223.5 million bushels compared 
to the estimated total production of 219 million bushels in 2015.

   The latest find of genetically modified wheat was reported by USDA on July 
29. In a news release, USDA stated: "USDA has confirmed the discovery by a 
farmer of 22 genetically engineered (GE) wheat plants growing in an unplanted 
agricultural field in Washington state. The GE wheat in question is resistant 
to the herbicide glyphosate, commonly referred to as Roundup. APHIS has taken 
prompt and thorough action in response to this discovery and has no evidence of 
GE wheat in commerce."

   South Korea promptly ceased purchasing wheat from the Pacific Northwest 
region, and by Monday, Aug. 1, Japan followed suit. 

   The last time GMO wheat was found growing, was in an Oregon field in April 
2013. After that find, Japan ceased buying wheat from the Pacific Northwest for 
four months, which created uncertainty and low prices for growers in Oregon, 
Washington and Idaho. Japan imports about 60% of its wheat from the U.S. on an 
annual basis, and about 800,000 metric tons of that is SWW. 

   This news is bad at any time, of course, but harvest has started and is 
moving along at a good pace. Soft White Winter wheat (grown predominantly in 
the PNW) cash prices were fading before the announcement due to the large 
yields being reported, but after bids were pulled Friday, they reappeared and 
cash prices were down 25-31 cents per bushel on Monday. 

   Joseph Anderson, an Idaho farmer and Idaho Wheat Commissioner, told me: "The 
wheat harvest in north Idaho is just getting underway. Yields look to be above 
average, due to low stresses during the growing season and good rainfall. Most 
of the wheat-producing areas of the world are anticipating good crops, and 
stocks, as you know, are up worldwide. A large HRW harvest, while not competing 
directly for the same customers, is bearish for our SWW price too."

   Anderson, whose farm is 20 miles north of Lewiston, Idaho, told me that "90% 
of the soft white wheat class in the Northern tier of Idaho is shipped down the 
Columbia River system, and exported, mainly to the Pacific Rim but also 
elsewhere in the world.

   "Farmer selling is light to nonexistent at these prices, as we are busy 
harvesting, added Anderson "and we are still in shock at prices we haven't seen 
in years." 

   It is likely that bins will fill to the brim for now until farmers run out 
of storage and have to find a home for their bountiful harvest.

   The latest news on foreign buyers is both good and bad. On Aug. 5, Dow Jones 
reported that South Korea had ended its brief suspension of new purchases of 
U.S.-grown wheat and will continue testing grain for GMO content as it has done 
for three years. Japan, on the other hand, has not lifted its ban, and sources 
in the PNW told me they have stopped buying spring wheat as well, possibly for 
one month. So, the GMO saga continues to linger out west, once again creating 
uncertainty for growers.

   Mary Kennedy can be reached at mary.kennedy@dtn.com 

   Follow Mary Kennedy on Twitter @MaryCKenn

******************************************************************************
STB Proposes Rule to Provide Competitive Rail Service

   Last week, after five years of study, the Surface Transportation Board 
proposed new rules for "reciprocal" or "competitive switching," which refers to 
a situation where a railroad that has physical access to a facility will switch 
rail traffic to that facility for another railroad that does not have physical 
access to that facility. The fees are then incorporated into the final rate the 
shipper pays. The idea behind the proposal is to allow all shippers another 
alternate for moving their commodities that may be cheaper and, in some cases, 
faster. 

   With a large corn and soybean crop looming, on top of a just-harvested 
high-yielding winter wheat crop and cheap grain prices across the board, any 
savings afforded to a shipper to move grain would be welcome. It's uncertain if 
that will be the case and how many shippers will benefit if the new rules are 
implemented.

   The effort to draft new reciprocal switching rules began on July 7, 2011, 
when the National Industrial Transportation League (NITL) filed a petition to 
institute a rulemaking proceeding to modify the Surface Transportation Board 
(STB) standards for reciprocal switching. Following that action, STB took 
public comment and held a hearing on the issues raised in the petition. 

   On July 25, 2016, the STB stated on its website that it would grant NITL's 
petition and institute a rulemaking proceeding to modify the board's standards 
for reciprocal switching. "In this decision, the board proposes new regulations 
governing reciprocal switching which would allow a party to seek a reciprocal 
switching prescription that is either practicable and in the public interest or 
necessary to provide competitive rail service," the STB stated.

   The Interstate Commerce Act makes three competitive access remedies 
available to shippers and carriers: the prescription of through routes, 
terminal trackage rights and reciprocal switching.

   Competitive access generally refers to the ability of a shipper or a 
competitor railroad to use the facilities or services of an incumbent railroad 
to extend the reach of the services provided by the competitor railroad. Under 
reciprocal switching -- or as it is sometimes called, "competitive switching" 
-- an incumbent carrier transports a shipper's traffic to an interchange point, 
where it switches the cars over to the competing carrier, notes the STB. 

   According to the STB, "The competing carrier pays the incumbent carrier a 
switching fee for bringing or taking the cars from the shipper's facility to 
the interchange point, or vice versa, which is incorporated into the competing 
carrier's total rate to the shipper. Reciprocal switching thus enables a 
competing carrier to offer its own single-line rate to compete with the 
incumbent carrier's single-line rate, even if the competing carrier's lines do 
not physically reach a shipper's facility."

   On April 4, 2014, the National Grain and Feed Association presented 
testimony on behalf of itself and eight other national agricultural producer 
and agribusiness organizations urging the STB to develop and propose revised 
competitive switching rules between Class I railroads that would be more 
conducive and accessible to captive agricultural rail shippers and receivers.

   "During a March 25-26, 2014, public meeting, the agricultural organizations 
reiterated their conceptual support for a petition filed by the National 
Industrial Transportation League (NITL) to revise the STB's existing 
competitive switching rules. But the groups reiterated their contention that 
the NITL proposal falls far short of what would be needed to provide meaningful 
relief to captive agricultural shippers," said the NGFA.

   After reviewing all comments prior to its July 25 decision to institute a 
rulemaking proceeding, the STB said: "We are concerned that reciprocal 
switching based on the proposed conclusive presumptions could have adverse 
effects on categories of shippers not eligible under NITL's proposal. If NITL's 
proposal places downward pressure on the rates of those shippers who are 
eligible, then there may be an incentive for railroads that cannot make up any 
shortfall to raise the rates of ineligible shippers or degrade service in an 
effort to cut costs."

   "For these reasons, the board prefers a reciprocal switching standard that 
makes the remedy more equally available to all shippers, rather than a limited 
subset of shippers. Imposing reciprocal switching on a case-by-case basis would 
also allow the board a greater degree of precision when mandating reciprocal 
switching than is afforded under the approach advanced by NITL. We believe such 
an approach would allow the board to better balance the needs of the individual 
shipper versus the needs of the railroads and other shippers." 

   Here is a link to the full decision: https://goo.gl/a2C7uk

   RAIL INDUSTRY OPPOSES DECISION

   On July 27, Association of American Railroads (AAR) President and CEO Edward 
R. Hamberger made the following statements in response to the Notice of 
Proposed Rulemaking (NPRM) by the Surface Transportation Board (STB).  

   "The freight rail industry acknowledges the complexities the STB had to take 
into consideration in arriving at this proposed rule, but, at the end of the 
day, the board should have dismissed the petition without further proceedings, 
as imposing new regulations like this are a step backward from the deregulatory 
path that has allowed railroads to make the capacity investments required to 
meet customer demand and further modernize a nationwide rail network that 
benefits shippers and consumers." 

   "The freight rail industry's position remains unchanged: forced access is an 
ill-conceived approach that compromises the efficiency of the entire network by 
gumming up the system through added interchange movements, more time and 
increased operational complexity."

   "Forced access would be a step backwards for the supply chain in our country 
as railroads would ultimately require more resources to move the same amount of 
freight, which would impact operational efficiencies introduced under the 
Staggers Rail Act," added Hamberger. 

   Hamberger noted existing STB regulations already protect rail shippers as 
railroads voluntarily switch traffic under the current system, and by law, if 
freight can get from its origin to final destination only if it is carried by 
two or more railroads, railroads must cooperate to move the shipments.   

   The STB noted on its website that comments on the proposed rule changes are 
due by Sept. 26, 2016. Replies are due by Oct. 25, 2016. Requests for ex parte 
meetings with board members are due by Oct. 10, 2016, and meetings will be 
conducted between Oct. 25, 2016 and Nov. 14, 2016. Meeting summaries are to be 
submitted within two business days of the ex parte meeting.

   Mary Kennedy can be reached at mary.kennedy@dtn.com

   Follow Mary Kennedy on Twitter @MaryCKenn

    

******************************************************************************
Freight Costs Rise as Large Crops Loom 

   "Bin-buster" will likely be the one word to describe the 2016 harvest. 
Starting with the winter wheat crop, yields so far have been reported to be 
anywhere from 50 bushels per acre to as high as 85 bpa or higher in some areas. 
USDA recently revised its winter wheat yield estimate to 50.5 bpa, which would 
be a new all-time high vs. the final yield in 2015. 

   Tim Luken, manager at Oahe Grain in Onida, South Dakota, told me it didn't 
take long for his winter wheat bins at the elevator to fill up. Currently, he 
said, "Anything that is coming through the door at this time is cash and with 
bins being full in the country, cash is the only game in town at this time."

   "Winter wheat yields in western South Dakota have been as good as expected," 
said Jerry Cope, who does the grain marketing for Dakota Mill & Grain, Inc. in 
Rapid City, South Dakota. "I am guessing our average is in the high 50s bpa. 
Harvest has outrun either total farm capacity or allotted capacity at farm 
bins. Grain delivered to the elevator has been contracted bushels, first, and 
excess over storage, second. In turn we have, or will be, shipping more. For 
now wheat is following soybean weather and corn's export demand and will either 
benefit on the cash side or suffer if freight values go higher." 

   Moving on to the 2016 corn crop, the most recent USDA estimate is that 
yields will be at 168 bpa vs. 2015 final at 168.4. However, many in the trade 
feel USDA will raise that estimate again for 2016, given the excellent shape 
reported for corn all summer. As of July 17, the corn crop was rated at 76% 
good to excellent vs. 69% the same time in 2015.

   Here's the problem: 2015 corn is still left in the bins. In the June 30 USDA 
Grain Stocks report, 2.47 billion bushels of corn remained stored on farms. 
This means corn has to start moving in order to make room for all the 2016 
crops, not just corn and winter wheat. 

   As far as the corn reported stored on farms in the June 30 report, some of 
that has moved from farm storage, but likely not enough to make a huge dent in 
the pile thanks to prices diving since June. On June 15, the DTN Cash Index was 
at $3.92; one week later on June 22, the cash index was 3.57; on July 1, the 
cash index was $3.23 and as of Friday, July 22, the cash average was at $3.06. 
As the price dropped, farmers ran away from the market. To make matters a 
little worse, freight costs are on the rise.

   At the end of June, secondary shuttle (shuttles no longer needed) freight 
costs were at $50/$150 per car (over tariff costs) for July, August was at 
$0/100 per car, September was at $0/$200 per car and October-December was at 
$450/$650 per car. On July 19, freight was quoted at $700/$900 for the rest of 
July split, August was at $400, September was at $300/$750, October was at 
$1,000/$2000 per car and full October, November, December was at $550/$750 per 
car.

   To put it in perspective, the shuttle tariff rate per car (plus fuel 
mileage) cost for corn delivered from Minneapolis to Portland, Oregon, is about 
$1.24 per car. If you want to buy shuttle cars in the secondary freight market 
for new crop, the added cost on top of the tariff cost is about 50 cents per 
bushel and that cost, in the end, may end up cutting into the price paid to a 
farmer; not a good thing given how much the cash corn price has dropped in the 
past two months.

   New-crop shuttle freight costs are obviously on the rise given the 
expectations for a very large corn new crop along with soybeans and wheat new 
crop that will have to ship. Nearby costs have been moving higher due to demand 
and also because shuttles are not moving quickly enough to destination and back 
again to be reloaded. A shuttle loader in eastern North Dakota told me he has 
three shuttles to move in the next few weeks, but "shuttles have slowed down 
causing delays." The BNSF considers "normal" trips per month for shuttles 
delivered to the PNW at 2.5 TPM (turns per month). In their weekly rail service 
update, the BNSF reported that for the week ending July 16, shuttle TPM were at 
3.0. 

   Dakota Mill and Grain, which is serviced by the Rapid City, Pierre & Eastern 
Railroad (RCPE), doesn't have a secondary freight market but is affected by 
other railroads that do, as well as rising barge freight. "We watch BN freight 
and notice bids are strong through the end of the year," Cope told DTN. "You 
are right, nearby freight values have jumped. From what we hear, there is fall 
demand and indications of a strong corn export program that will keep shuttle 
resale values well supported. We don't follow barge freight as close, but it is 
reasonable that stronger rail demand creates barge demand. The railroads are 
leaving the door open for rate increases after November and if they follow 
their usual pattern, would not be surprised to see an attempt for $200-plus per 
car (5 -- 6 cents per bushel)." 

   Barge freight on the Mississippi River and its tributaries reached all-time 
highs in the past month. USDA in its June 23 Grain Transportation report said, 
"Current grain barge rates have increased to the highest levels since November 
2015, based on increased demand from higher shipments. As of June 21, St. Louis 
to New Orleans grain barge rates were 300 percent of tariff ($11.97 per ton), a 
40% increase compared to last week, and 18% above the five-year average. Rates 
at other major barge origins had 25% to 51% weekly increases and were 10% to 
27% above the three-year average. The largest weekly increase for export-barged 
grain was at origins on the Ohio River. Corn shipments have been up as the last 
four weeks of corn inspections at the Mississippi Gulf were 120% of last year 
and 151% of the three-year average. Continued concerns over tight corn supplies 
in South America, especially Brazil, may be driving the current increase in 
corn exports and may be causing the higher barge rates."

   Since that report, costs have come down some, but remain well above average 
for this time of year. For example, barge freight on the Illinois River for the 
week ending July 19 was 9% higher than last week, 12% higher than last year at 
this time and 27% higher than the three-year average. 

   A northeast Illinois grain merchant told me that he has quite a bit of corn 
to move to be shipped to the Gulf via the Illinois River. He agreed that high 
freight costs are not a good thing for the farmer with the lower prices we are 
currently seeing. He added that he has heard talk of bulk ocean vessel freight 
moving higher as well.

   That means that the piece of pie going to the farmer will just keep getting 
smaller.

   Mary Kennedy can be reached at mary.kennedy@dtn.com 

   Follow Mary Kennedy on Twitter @MaryCKenn

******************************************************************************
US New Crop HRW Protein Disappointing 

   As the winter wheat harvest moves north through South Dakota and into North 
Dakota and Montana, millers hope those states will harvest higher-protein wheat 
than what was harvested in Southern Plains states this year.

   U.S. Wheat Associates reported Friday that as of July 14, "The average 
protein of 11.2%, down a full percent from last year, did not change this week 
and continues to be the major topic of discussion of producers and within the 
trade. The relatively low-protein values are a result of the exceptional yields 
in the 2016 crop, much higher yields than growers could have anticipated when 
applying fertilizer." Samples tested were from Texas, Oklahoma and Kansas.

   Tim Luken, manager at Oahe Grain in Onida, South Dakota, told me harvest in 
his area as of July 13 was 50% to 60% finished. He told me that protein levels 
have been running between 11.2% up to 11.8%. "If the industry is going to think 
South Dakota is going to have protein to save the day, I really don't think 
it's going to happen," he said. He added that over the past weekend, the 
protein backed off to 11.3% on the wheat he took in. He said he was still 
hoping to see some better protein, but likely not much 12% and higher.

   Several major factors influence the protein content in wheat. The Alberta 
Agriculture and Rural Development staff noted in a study that those factors 
include the timing and amount of growing season precipitation; the temperature 
and heat (degree days) during the growing season; soil nitrogen reserve levels; 
and applied nitrogen fertilizer pre-plant, at seeding and in-crop applications. 

   However, weather during the growing season is the overriding factor 
affecting protein content of wheat. It controls two of the major influences on 
protein content: the timing and amount of growing season precipitation and the 
degree days. Because there wasn't enough heat and dry weather this growing 
season, the wet weather gave a boost to the crop yield, but the protein content 
suffered.

   WHAT HAPPENS BELOW 12% PROTEIN AVERAGE?

   It's no secret that flour mills' flavor of choice is 12% protein when it 
comes to making flour. For example, while flour mills make a 13% protein flour, 
the most common is a mid-mix, 12% protein flour. One thing to note is that 1% 
of the wheat protein is lost in the flour-making process. 

   The higher the protein content, the harder and stronger the flour and the 
more it will produce crusty or chewy breads. The lower the protein, the softer 
the flour, which is better for cakes, cookies and pie crusts. According to a 
flour miller, the increased protein binds to the flour to entrap carbon dioxide 
released by the yeast fermentation process, resulting in a stronger rise.

   A miller told me that as far as the 13% protein flour, it will likely be 
made with all spring wheat this year if the HRW new-crop average remains below 
12%. The 12% protein flour will likely need to blend 75% to 80% spring wheat 
under the same scenario.

   That means flour could get expensive to make. Spring wheat September futures 
closed at $4.96 3/4 on July 15, and Kansas City September futures (KCU) closed 
at $4.13 3/4. The value of the spot winter wheat basis between a flat 12% 
protein and ords (ordinary protein levels, below 11%) was a 75 cent spread 
Friday. Spot ords traded at -25KCU versus 12% protein at +50KCU and versus 13% 
protein at +110KCU.

   Dan Maltby, a former HRW buyer in Kansas City and current consultant for 
Risk Management Group Minneapolis, told me that, "As far as flour/wheat protein 
concerns, ultimately, I believe the miller and the baker will work out a 
compromise that 11.5% pro HRW will make an 'acceptable product.' Big old-crop 
stocks, widely believed to be 12% pro will help this year's crop, widely 
believed to barely average 11% pro. However, negotiations are still ongoing, as 
witnessed by continuing drop in posted 12 pro HRW milling values."

   "Of course," added Maltby, "spring wheat protein content is still a mystery. 
Big rains argue for lower protein content, but high temps as the head fills 
will offset that to a degree, although to what degree, I'm not sure. Also 
old-crop stocks of spring wheat do exist. The four-state region of Minnesota, 
North Dakota, Montana and South Dakota had 163 million bushels ON FARM as of 
June 1." 

   As a reminder, the average old-crop spring wheat protein for 2015-16 was at 
14.2%, and the average of hard red winter wheat old-crop protein was 12.3%.

   LOWER PROTEIN MOVES TO FEED CHANNELS

   Informa Economics pointed out that the enormity of U.S. wheat supplies has 
weighed on prices, both cash and futures, for several months. "Recent data 
points to the Texas Triangle HRW/corn spot price ratio being the weakest it has 
been since the summer of 2012. The weakness in wheat cash prices, relative to 
corn, has induced greater-than-average wheat feeding in the Central Plains," 
Informa stated in recent comments.

   While USDA increased its feed and residual forecast 100 million bushels to 
300 million bushels, Informa Economics increased its U.S. feed and residual use 
forecast from 260 million bushels to 340 million, mostly for HRW, whose 
production was increased 55 million bushels from Informa's previous forecast. 
Informa reported that they increased feed and residual for several reasons. 
"Record yields in the HRW Wheat Belt and large stocks have weighed on prices, 
inducing heavier-than-normal feeding rates. Cash wheat is cheaper than corn in 
some areas in the HRW Wheat Belt, and the Chicago wheat-corn and Kansas City 
wheat-Chicago corn spreads are weak relative to history. Additionally, export 
demand for corn recently has popped."

   So, if we can't bake it, we'll have to feed it, and a cheap feed it will be 
compared to other protein feeds. As yields continue to be near record this crop 
year, the supply of wheat in the U.S. can be classified as a "bin buster." The 
latest USDA estimate for the winter wheat yield was forecast at 53.9 bushels 
per acre, up 3.4 bushels from USDA's June forecast. If realized, that would be 
a record. The current forecast compares to the previous record at 47.8 bushels 
per acre in 1999. And that is just the winter wheat harvest; we still have a 
spring wheat crop to cut.

   Mary Kennedy can be reached at mary.kennedy@dtn.com 

   Follow Mary Kennedy on Twitter @MaryCKenn

******************************************************************************
Volatile Markets Require a Long-Term View

   The last couple weeks have been an excellent example of volatility, not only 
in commodity markets, but also in financial markets domestically and globally. 
The turmoil surrounding the Brexit situation in the financial and stock markets 
is a primary example as prices initially plunged but have now bounced back 
above pre-Brexit highs. 

   In the two days following Brexit, the Dow Jones Index fell nearly 900 points 
with some concerned that aggressive follow-through liquidation would lead to a 
widespread, global recession. However, fast forward just two weeks and the Dow 
Jones index has regained all of the losses and has moved to 14-month highs well 
above 18,000 points with Monday trading at 18,256 points. This is well over a 
1,100 point rally from the post-Brexit lows.

   It is premature to say that we have all the ramifications of the United 
Kingdom leaving the European Union in hand, as realistically the only thing 
that is complete is the initial deciding vote. Much more volatility is likely 
to be seen in the months and years ahead as each side charts its course. 

   In commodity markets, this is an important lesson to take to heart. The most 
publicized and talked about events that touch a market may not always be the 
"sky is falling" type of tragedies they are made out to be. Take for example 
the lean hog market. Over the last two months it has shown both sides of this 
equation as nearby contracts rallied sharply during the last two weeks of May 
and first half of June. This added $9 per cwt to July contracts. Expectations 
for extreme firmness in cash prices and tighter supplies heading into the 
summer added fuel to the already red-hot fire; the price increases seemed 
unstoppable -- until the second week in June.

   However, over the last month, the total opposite action is taking place, 
with sharp and steady liquidation not only quickly eroding front-month July 
futures prices to near the May lows, but the trade also aggressively shed open 
interest as commercial and investment traders alike bailed on the market which 
just a month ago held so much promise and optimism.

   There are fundamental and technical factors involved in the lean hog market 
which may continue to drive additional volatility, but it is good to keep in 
mind that the more volatile the market, the more vital to keep a long-term view 
of market shifts, and try not to get caught up in the daily and intra-day 
action that can add so much emotion to the complex. 

    Rick Kment can be reached at rick.kment@dtn.com

    

******************************************************************************
Cash Market Moves -- Weaker Cash Price Not Helping Basis to Rally 

   Weaker corn and soybean cash prices are not helping basis to rally as one 
would expect. And the continued outlook for large corn and soybean crops this 
growing season is not helping.

   Soybean basis was trading near historical lows at the end of May 2016, as 
increasing cash prices had kept basis from moving higher. On May 1, the DTN 
Cash Index was $9.57 and on June 29, pre-USDA report day, the DTN Cash Index 
was $10.79. As weather conditions improved, the cash price came under pressure 
and the DTN Cash Index as of July 8 was at $10.24. For the week ending July 8, 
the July soybean futures contract lost 79 cents, even after rallying 35 1/2 
cents on Friday, and November futures lost 79 3/4 cents. 

   Some soybean processors and exporters found themselves in need of nearby 
spot supplies and paid up by pushing basis levels. But even with tight nearby 
supplies, basis remains near five-year lows. After the steep losses since July 
1, any farmers with cash beans left have no interest in selling anymore. 
Farmers who have old crop left, and likely not huge quantities, may be waiting 
not just for higher prices but also to see how their new-crop beans make it 
through the next month. One thing to remember is that new-crop soybean yields 
aren't really determined until August and September, with timely rains and warm 
conditions key to their success.

   A northern Illinois shipper told me he believes farmers are mostly "sold 
out" of cash beans. "The commercial still has plenty of ownership yet from 
cheap basis values they bought out of storage on the board run-up April to 
mid-June," he added. "Exports seem to be very good at the Gulf, so most are 
holding out for higher basis vs. the July or Aug bean futures."

   Corn basis has also been under pressure, which is mainly due to plenty of 
supplies on hand, along with competition from cheaper feed wheat prices. In 
fact, soymeal, DDGs and other corn by-products prices may find themselves 
facing lower prices as feed wheat supplies grow. While demand for corn has been 
strong, the cash corn price has been victimized by a large new crop that so far 
is coming along quite nicely. On May 1, the DTN Cash Index was $3.57 and on 
June 29, the DTN Cash Index was at $3.39 and continues to fall. As of July 8, 
the DTN Cash Index was at $3.21.

   At the end of the pre-4th of July weekend, September corn futures lost 29 
cents, but if you add the prior week, the two-week losses in the September 
futures came to 82 3/4 cents. The December corn contract was down 27 1/4 cents 
with its two-week losses at 81 3/4 cents. Futures for the week ending July 8 
lost another 5 cents, extending corn's losing streak. As for basis, it hasn't 
moved much either way on average during that same timeframe.

   It hasn't helped corn's cause that USDA estimated that U.S. farmers will 
plant 94.1 million acres and estimated June 1 U.S. corn stocks at 4,722 million 
bushels, which would be the fifth largest on record if realized. As far as the 
large expected acreage, the final outcome of that will depend upon the weather. 
So far, there doesn't seem to be talk of a drought situation and we still have 
to get through July, which can be a mixed bag of storms, excessive heat and 
dryness. However, as it looks right now, there is a pretty good sized new corn 
crop in the making, barring any serious weather events.

   DTN Senior Ag Meteorologist Bryce Anderson said, "La Nina conditions (cooler 
than normal equator-region Pacific, jet stream pattern featuring widespread 
high pressure over the central U.S.) have not developed yet. Both the water 
temperatures and the barometric indicators are at neutral. I don't think we'll 
see full-on La Nina indications until September. There is still a fair amount 
of El Nino flavor to this feature, and the evolution is acting very similar to 
the year 1998, which followed a very strong El Nino year 1997. 1998 was a very 
good year for corn/soy production."

   Mary Kennedy can be reached at mary.kennedy@dtn.com 

   Follow her on Twitter @MaryCKenn

******************************************************************************
SOLAS Update; OCEMA Members to Accept Marine Terminal Weights

   There have been some new developments concerning Safety of Life at Sea 
(SOLAS) mandatory weight reporting since my blog titled "SOLAS Deadline Nears; 
Still No Clear Picture on Implementation" was posted on June 20. 
https://goo.gl/rbQNwy 

   On that day, the Agriculture Transportation Coalition (AgTC) put out a press 
release saying, "The Ocean Carrier Equipment Management Association (OCEMA) 
officially announced that their member ocean carriers will accept the marine 
terminal weights, so that exporters do not have to provide the combined 
cargo/container weights to the carriers. There is still work to be done, 
particularly for containers arriving at terminals without going through the 
gates, by on-dock rail." OCEMA is an association of 19 major U.S. and foreign 
flag international ocean common carriers. Here is a link to the announcement by 
OCEMA: http://goo.gl/bNa1SB 

   I asked Midwest Shippers Association (MSA) Executive Director Bruce Abbe if 
the picture was a little clearer since OCEMA's announcement. "Yes, I would say 
so," he said. "I'm guessing now that with this option being now through OCEMA 
as a noted, endorsed method that many, if not most ports and terminals will 
offer it. And for others, they had best inform anyone shipping through them 
what their policy will be. I expect there will be differing levels of adoption, 
but the trend is for many of them to provide it. And then will the carriers 
accept it? I expect most will."

   However, Abbe also said he expects many freight forwarders will not want to 
take any chances with shippers' container cargo come July 1 and many of them 
will probably try to provide some kind of VGM (verified gross mass) weight -- 
the combined weight of the cargo and the container -- reporting via whatever 
the system is the carriers will each provide.

   "Hopefully, someone or all of them will track and inform shippers/forwarders 
what systems are available at the different ports and systems," he said. "If 
terminal-weighing will be done, that's probably what should be used. But if 
not, shippers/forwarders should plug in something."

   "There was also some uncertainty when it came to on-dock rail container 
service," said Abbe. "In the case of on-dock rail, most of those containers are 
not weighed at some (not all) ports. Charleston, South Carolina, for example, 
doesn't have on-dock rail, so everything gets weighed now anyway (to meet OSHA 
requirements, has been for 25 years.) Seattle, which serves our region, has 
what some call on-dock rail by BNSF at SIG (Seattle International Gateway) but 
in fact it isn't true on-dock rail because the boxes have to be pulled off and 
put on chassis for a short run over to the terminals of choice/booking. So 
maybe they are weighed at the terminals. Hope so."

   Abbe said he recommends shippers/forwarders should provide a VGM weight, 
according to whatever the carrier makes available for their systems and that 
they tell/email the forwarder to say they are providing a VGM. He added that if 
the terminal is going to weigh and report it, they should go with that one.

   "I just don't have a good handle on how this will all be adopted and played 
out over the next few days ahead of July 1," said Abbe. "I would not advise 
shippers to just do nothing new unless they know for sure that their shipment 
is going to go through a port where the terminals will provide the VGM. In 
time, I think that is what will be the case ... what the system will adopt.

   "And the shippers/forwarders/logistics providers ought to be concerned 
enough and informed enough to make sure there is no slacking on this. Plus, 
with the International Maritime Organization (IMO) recommending 'more 
flexibility' at the beginning of VGM requirements the first three months, that 
hopefully things will go ahead without major interruptions in the U.S."    

   What will happen overseas is still very unclear, Abbe told me, because many 
countries and ports haven't given any indication yet on what their systems will 
be. "It's been a confusing mess getting here."

   Mary Kennedy can be reached at mary.kennedy@dtn.com 

   Follow her on Twitter @MaryCKenn

******************************************************************************
DTN's Brexit Vote Coverage

    Results from the U.K's Brexit vote -- deciding whether or not it will stay 
in the European Union -- will be coming in during the overnight hours. And 
while the finality, if "Leave" carries the day, won't be seen for a number of 
years, market reaction is expected to be immediate and volatile. With that in 
mind, DTN analysts will be covering the developments in this blog overnight. 
Updates will appear in the comments section, and we invite your participation 
(questions, comments) as well. 

   DTN Market Analyst Todd Hultman will take the first shift from 7 p.m. CDT to 
midnight, when much of the news could possibly break. DTN Senior Analyst Darin 
Newsom will take over at midnight and discuss developments up through Early 
Word Grains analysis early Friday morning.

******************************************************************************

Your local weather forecast from DTN can be sent to your email every morning free through DTN Snapshot.
 
 
Copyright DTN. All rights reserved. Disclaimer.
Powered By DTN