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Agri-commodities update: Sugar plunges off the Yungas Road

Sugar prices plummeted last night because “we’re here because we’re here” was eventually too flimsy a rationale to stay there.

Currencies

Monday was largely dull in currency markets.  The US Dollar was little changed against the other agri-exporter currencies.  There is every chance that bored lingering will continue until the wee hours of Friday morning when the US Federal Reserve will make an announcement about interest rates.  The Australian Dollar has the Reserve Bank to focus on today.  The market, by a large consensual majority, thinks interest rates will remain unchanged.  Ahead of that the Aussie had a very quiet day so it starts today, as it did yesterday, at about 76¢.

Grains & Oilseeds

  • Global wheat futures prices rallied on Monday, Chicago sharply.  Weather forecasters see little chance of rain in the dry parts of US hard red winter wheat country for another week.  Weather models are suggesting a useful rain event for the region at the edge of the forecast horizon.  Forecasters remain wary.  Temperatures are expected to remain high enough to for crops to use any rain that does fall.  So any substantial rainfall will help crops and see prices ease.  Absent that though, the dry pattern has persisted long enough to stoke worries about fragile crops as the cold takes them to dormancy but before the safety blanket of snow.  In Argentina, some wheat regions are still a little soggy but forecasts suggest they will have the opportunity to dry down over the next week or so.  And with that concerns about further crop losses can be scratched for now.  Dry areas of southern Russia and western Kazakhstan saw a patchy rain over the weekend.  The amounts look like enough to reduce the dry area to levels modest enough to remove it from the watchlist.  Temperatures, and snows behind it, are now descending southward towards to bring on dormancy through the Black Sea regions.
  • ASX East January wheat futures dropped a couple of dollars to close Monday at 235$.  The overnight rally in futures markets means Australian basis is lower this morning.  Australian wheat is now more competitive on the world market which should prove supportive for prices today.  Weather forecasters expect the weekend’s largely dry conditions in Australian winter crop areas to continue this week.
  • Corn futures finished Monday all but unchanged.  Prices attempted a rally on news of strong US export inspections data, but once again meet resistance and fell back sharply.  Faltering at previous highs is not a promising sign.  The USDA reported that the US corn harvest pace is now three quarters complete, smack bang on the five-year average pace.  The weather outlook remains largely favourable, so the harvest should be wrapped up within the next fortnight.  In South America, Brazil is forecast to receive adequate amounts of rain in the next couple of weeks to support planting and development.  Much of Argentina saw drier weather over the weekend which will have improved conditions for fieldwork.
  • Oilseed prices had a mixed Monday, though most contracts finished the day on a weaker bias.  Nearby soybean futures were buoyed by news that nearly a quarter of a million tonnes of US ‘beans were sold to China on Monday.  Weekly US export inspections data, at 2.9mmt, was also helpful.  However the US reported that its soybean harvest, now 87% complete, is running ahead of schedule thanks to another week of mostly clear skies.  Storage bins are reportedly filling up, which might prompt some additional farmer selling.  On the canola front, weather forecasters say drier conditions will evolve in Canada’s Prairies this week.  The clock is ticking louder for Canada’s canola harvest though, so warmer temperatures will also be needed to accelerate drying.

Cotton

US cotton futures plunged on Monday.  The market did not take too kindly to Cotlook’s reduced 2016 global cotton deficit forecast.  The USDA also reported yesterday that the US cotton harvest, currently 46% complete, is slightly lagging its average pace. The market though was probably more interested in the fact that cotton conditions have improved by another percentage point. Nearly half of the crop now considered to be in good to excellent condition as better conditions in Texas and Oklahoma more than offset the small declines reported in the Southeast.  Forecasters say West Texas is likely to see some rain this week – unwelcome at this stage in the game.  Elsewhere the weather remains largely favourable.

Sugar

Sugar futures prices plunged last night.  New York March plunged by more than 2½% to the lowest since mid-September.  The March has now given up most of the 2¢ step-up in the market at that time.  The March's premium to May has also given up most of the step up and is now less than a half-cent.  The prompt market is clearly crumbling.  Analysts’ numbers suggest that high prices have gone a long way to resolving the prospective supply tension in the first quarter of 2017.  There is likely to be a bounce at some point but falls of this kind develop a momentum of their own as each tick lower finds new sell levels.  The move down over the past five days has been on modest volumes to be sure but in or view that simply underscores the fragility of the market.  If there was not enough buying to hold up against modest selling then the market is weak.  Is there any obvious support points on the way down?  Around 21¢ looks to have several points of history plus the obvious big number attraction.  The violent fall of recent days though is a warning.  The investor long that is the source of much of the selling is very large.  Neither producers nor the trade, who have sold earlier, nor commercial buyers with just routine needs, will be in a hurry to buy the long off them.  The seller will mostly do so in a manner that will take prices to the buyers – and those buyers largely know that.  Season 2017 and 2018 prices also fell but by less, to just below $580 and $530 respectively.

Cattle

Australian spot cattle indicators eased a shade on Monday, though price trends did vary across selling centres.  Restockers have reportedly taken a step back from the market, waiting to see if prices settle down after the modest spike in October supply, or continue to move lower.  Restockers have been the driving force behind the cattle market’s rally.  In the US, live cattle futures prices continued to gently ease away from last week’s highs.

Dairy

NZX WMP futures were little changed on Monday.  The next GDT auction is tonight.  The gains in WMP futures over the since mid-October suggest there will be 10-12% gains in WMP prices.  The futures will need the auction to at least roughly calibrate to similar levels.  We think that is likely because the analysts have materially cut milk production estimates in NZ and Australia (and so globally) since the last auction.  Victoria dairy regions remained largely dry on Monday.  The southern parts of western Victoria did get some rain while Tasmania continues to receive too much rain.  Weather model projections suggest the southern dairy regions will continue to get rain at different times so the conditions are yet to return to seasonal norms.

Learn More

For a more detailed snapshot of market conditions, or to get the daily market update direct to your inbox daily, visit Commonwealth Bank.

Important Disclosures and analyst certifications regarding subject companies are at www.commbank.com.au/corporate/research. This report was originally published, approved and distributed by Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945.

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