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Agri Commodities Update: standards slipping in wet conditions

Worries about Australian milling wheat supply have boosted Australian wheat prices.

Currencies

The US Dollar did not make any broad moves against the other agri-exporter currencies on Friday.  The Australian Dollar has edged higher to start today a little under 75¾¢.

Grains & Oilseeds

  • US wheat futures continued to gain on Friday, albeit more modestly.  Another day that suggests the wheat market has found some stability.  As does the return of the Kansas December premium to Chicago to recent highs.  Price levels still have to make up some lost ground.  The market seems to be getting over the issue with Egypt but is probably 15-20US¢ off “forgetting” the issue.
  • ASX East January wheat futures rallied 5$ or so to close the week just under 231$.  Friday night’s trading in wheat and currencies is net helpful to start today.  The market was spooked by impending weekend rain, which duly arrived.  The extra moisture is not needed in a lot of places so that places a question over the quality, if not the quantity, of Australian wheat.  The market’s reaction on Friday reflects those worries and might do so again today.
  • Corn futures bounced again on Friday.  Encouragingly, the market closed not far from the day's highs.  Friday’s positions report indicated that investors had increased their short positions in the week to last Tuesday.  We suspect Friday’s leg higher was prompted by participants (investors among them) squaring some of those positions up ahead of a US holiday weekend.  The Midwest received abundant rainfall last week that, as the US harvest gets underway, is not particularly welcome - the crop now needs largely warm, sunny days to ensure a good finish.  Forecasters say the lower and eastern parts of the Midwest should fare okay this week, but the upper Midwest will be disrupted by frequent rounds of (occasionally heavy) rain.
  • Soybean futures closed modestly higher on Friday.  The market took a big step up in early trade and then spent the remainder of the day zigging and zagging.  Friday’s position report showed that investors again trimmed their bullish positions, but the funds are still very long so downside risks remain.  The promise of a large US harvest has returned global supply to a “comfort zone”, but we have long argued that the market can easily be pushed back into discomfort.  South America still has the potential to significantly tighten or ease global supply, depending on how the Brazilian and Argentinian growing seasons pan out.  Some meteorologists are no longer confident that a La Nina event will evolve in 2016/17.  They expect there may still be some dryness but, in the absence of a full-blown event, say it may be the South American crops also dodge the La Nina bullet this season.

Cotton

US cotton futures closed modestly lower on Friday.  Investors had sent the market into a frenzy the previous day as a hurricane threatened to make landfall in the US southeast.  Sentiment was clearly a little more relaxed on Friday though as the market gave back about a quarter of those hefty gains.  Hurricane Hermine did indeed barrel through Florida over the weekend, before waning to a tropical storm and moving up through Georgia and the Carolinas.  Forecasters say some damage may have occurred to cotton in the open boll stage, but the extent is yet unknown.  A drier forecast for this week though should help the affected areas dry down relatively quickly.  West Texas also received some rain over the weekend – no longer all that helpful at this point in the season.

Sugar

Sugar futures prices bounced on Friday.  Spreads gained too but by well less.  The October-March spread made grudging gains to remain at a level that will move sugar into next year.  The spread also ran into hefty selling at the day’s highs.  The positions report published on Friday shows that investors had added to already huge (and record) long positions as of last Tuesday.  Another day of seemingly pointless volatility as the end-game creeps closer.

Dairy

NZX WMP futures lacked any broad direction on Friday.  Most contracts finished US10$ either side of their previous close.  A GDT auction looms tomorrow evening to give the market more guidance.

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.research.commbank.com.au.

This report was originally published, approved and distributed by Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945.

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