US Gulf FOB corn offers top PNW on export rush, quality worries
Offers for FOB loading corn out of the US Gulf have risen above levels heard in the Pacific Northwest export hub in a rare reversal of typical trading patterns - a reflection of strong demand in the Gulf and lingering quality issues in the PNW.
Offers for September loading US Gulf FOB number 2 quality corn export cargoes were heard at 102 cents over the September futures contract overnight, with PNW number 3 quality corn offers for the same loading month heard at around 97 cents over September.
“We very rarely see the spread get this narrow and, when it has before, usually demand takes care of it pretty quickly,” one US-based trade source said.
The additional freight cost of moving corn to the PNW by rail and competition from beans ensures it usually trades at a premium to the Gulf.
“The Gulf is basically never higher than the PNW. The last time I remember it happening was 2012 when we had the drought – PNW was able to procure product as they had a record year in the north plains but the rest of the US suffered,” a second market source said.
The dynamic has unfolded while the US races towards the end of its corn marketing year, with a heavy slate of 2019/20 sales still expected to be converted into exports between now and September 1, and the US Gulf emerging as the primary point of exit for much of that volume.
But with the PNW typically well positioned to cater for Asia-oriented demand, many of the big importers have already covered their mid-year demand. Lingering quality concerns in states that feed into the PNW supply routes mean the hub has had to discount to attract limited demand.
The two hubs are typically differentiated by prevailing quality, with the Gulf predominantly handling the higher-quality number 2 grade feed corn and PNW handling number 3 grade, which usually trades at a discount of around 5-10 cents.
The US is emerging from what has been a damp harvest, however, with PNW supply routes particularly affected and issues raised about quality – leading to reports that some end users are avoiding the hub and deepening the discounts applied to attract buyers.
“The PNW market is obviously better suited for Asia flows given ocean freight spreads, and the reality is there is not much open demand for the August and September timeframe in Asia,” the first source said, with the increased cost of moving product to the PNW redressed by lower freight costs.
US export inspection data has highlighted the pace of exports in recent weeks as well as the supremacy of the Gulf over its PNW counterpart.
Since the week ending May 1, US Gulf exports have averaged 640,000 mt per week, according to USDA inspection data, comapred with 393,000 mt handled by the hub over the same period of 2019 - exporters picked up the pace to close a gap between commitments and exports.
For the PNW, the volumes handled have also jumped, averaging 309,000 mt over the same period compared with 240,000 mt in 2019.
Agricensus publishes a number 2 quality corn assessment for both the US Gulf and PNW, with the APM-15 for FOB US Gulf assessed at $166.75/mt at Wednesday’s close.
That equates to a premium of 96 cents, with the PNW assessed at premium of 114 cents, both over September.
Premiums for the Gulf have surged since the start of May, jumping from 47 cents over the front month contract on May 1 because of relatively attractive premiums that fired an end-of-season demand flurry.
The USDA expects 2019/20 corn exports to reach 45 million mt - total commitments currently stand at 43.7 million mt - and exports at 37 million mt, according to the latest weekly data.