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Agri-commodities update: The bears are back in town

Corn and soybeans fail to hold last Friday’s gains as weather forecasts suggest more benign weather for US crops in early-August.

Currencies

The US Dollar was mostly stronger against the agri-exporter currencies on Monday.  The greenback made little new ground though and so left no mark on commodity prices.  The Australian Dollar fell a little to follow that general pattern.  Today though might see more independent direction for the Aussie.  The RBA will announce any changes to interest rate policy today.  We, and many others, expect them to cut interest rates by a quarter percent, to 1.5%.  The cut is about low inflation.  Many had thought we had seen the last cut some time ago but the persistence of low inflation has added an extra step or two.  The extra steps are still something of an awkward surprise - like those extra steps when miscounting your descent in the dark.

Grains & Oilseeds

  • Wheat futures prices were little changed on Monday.  The market is still tallying up the net impact of good Black Sea crops versus poor crops in the EU.  We think there will still be too much wheat in the world for the net, whether it is plus or minus, to take prices a lot higher.  The loss of EU wheat though is going to offer a modicum of support.
  • ASX East wheat futures were unchanged to modestly higher Monday.  ASX East January lifted a dollar to close at 245½$.  Australian basis has crept higher in the last week or so, so the local market is likely to have a weaker bias today.
  • Corn futures took a sharp turn lower as investors continued to reposition their exposure in the market, reducing longs and adding shorts.  The proportion of US corn rated in good to excellent condition was left unchanged at 76% which added to the day’s bearish tone.  Weather forecasters’ models are running wetter for the US Midwest over the next fortnight and next week’s high pressure ridge is now being described by meteorologists as a “weak” event.  While corn is not totally in the clear, the window for significant weather-related losses is quickly closing.
  • Soybean prices plunged on Monday to give up all of Friday’s gains (and then some).  The USDA reported that US soybean crop conditions had improved on the previous week.  August is the most significant month for US ‘beans in terms of development which means there is still a window of potential worry left for crops.  Current forecasts though don’t suggest any significant near‑term threat.  Meteorologists’ models now point to more rain over the next fortnight and a lack of excessive heat.  Investors still hold a relatively large long position in ‘beans, so the less threatening crop weather has the market vulnerable to continued fund liquidation.  Winnipeg canola futures were closed due to a Canadian holiday.

Cotton

US cotton futures were a shade higher Monday as the market consolidated Friday’s much sharper gains.  US cotton conditions declined two percentage points following persistent hot and dry weather.  Forecasters say rainfall will remain restricted in much of US cotton country this week too, which may cause stress to rise for unirrigated crops.

Sugar

Sugar futures prices fell sharply on Monday.  As did the prompt spread, which, unlike prices, made new lows in this recent weaker swing.  The market retains a decidedly wobbly look.  Momentum investors remain heavily long in a sideways-to-down market.  They have clear potential to sell more in a market that looks to have plenty of supply near-term.

Dairy

NZX WMP futures were sharply higher Monday.  Futures prices are pointing to a sizeable jump in physical prices at tonight’s GDT auction.  Auction results though have tended to undershoot futures pricing of late though, so, bearing that in mind, we expect prices to lift 5-7% at the auction.  Yesterday Fonterra announced that it would maintain its opening 2016/17 farmgate milk price forecast of NZ$4.25/kg MS.  We continue to expect that milk prices will gradually recover as NZ output contracts throughout the season.

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