It’s been a disappointing few weeks in terms of U.S. corn export sales. The last four weeks has seen a combined tally of 3.2 MMT of new deals come through, but last year that same four-week period garnered 4.9 MMT of business.
Part of the explanation for poor export sales may be attributable to rising bulk freight costs.
Dry bulk ocean vessel rates have been climbing precipitously over the past few months. In June, the cost for a Panamax ocean vessel to carry grain from the U.S. Gulf was $47 per metric ton ($1.19 for a bushel of corn). At its recent peak in mid-October the rate was as high as $58 per metric ton ($1.47 a bushel).
Part of the surge is due to higher fuel costs, but is also in part a symptom of the U.S.-China trade war.
Freight front-end loading has been a common feature of late as shippers look to beat deliveries prior to January 1, 2019, to avoid the next round of 25% increases. Therefore, demand should stay high for the near future which could make grain logistics less viable.
Japan is a key buyer of U.S. corn, so being able to economically deliver corn there is crucial to export success.
In the past few weeks U.S. prices delivered into Japan have been trading above Ukrainian delivered prices. While Brazil is out of contention because of higher prices from last year’s crop problems, going forward this season Ukraine will be the market to watch for U.S. competitiveness into Asia.
Takeaway: U.S. corn prices are not getting support from external forces.
High freight costs and a strong U.S. dollar are factors working against U.S. competitiveness right now. We don’t think corn needs to go lower at this point but it could also spell a longer wait for any notable price strength.
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