New problems in the Mississippi River network, which is at the export hub of the US Gulf, and the lack of demand for US corn, are putting pressure on exporters' margins as the relatively high price of CIF-delivered barges reduces the cost of building FOB export cargoes from the barge market.
“Barge premiums are inverted due to shoal issues and low water in the south. It is a slow turnover on these barges and therefore reduces the fleet,” said a market source, referring to a dynamic that is reducing barge availability and supporting the price of delivered corn.
US Gulf CIF-delivered barges were bid at 36 cents for October arrivals and 43 cents for November versus the December contract, with FOB cargoes heard offered at 44 cents for October loading and 50 cents for November.
The cost of building the barge market's cargo volumes is known as the elevator margin and must cover the cost of moving the corn from the barge to the elevator and then to the cargo ship.
The cost, sometimes called the evacuation cost, is typically around 10 cents per bushel, meaning FOB cargoes must typically trade at least 10 cents above CIF barges.
However, margins for October and November are already around 6 cents and 5 cents respectively, with pressure on bulk exporters to offer cargoes at levels that will tempt buyers.
“I saw sellers willing to look at downsized loads in September… this implies there is not much movement,” said a second market source, with US exporters looking to carry downsized loads to secure business. .
“They solved the problems left over from the spring and summer and now they need to attract new demand, and so they start to reduce margins. When/if demand returns, they will start increasing those margins,” the first source said.
However, with South America still facing a massive combined corn harvest of around 150 million tons, split between Brazil and Argentina, and with Ukraine likely to begin harvesting another large corn crop starting in September, the U.S. continue to face strong international competition.
The USDA's 2018/19 export estimate of 53.34 million tons is likely to be missed, with the current commitment at 47.9 million tons, with just a few days left in the marketing campaign.
Source: AgriCensus
