Sugar prices continue to weaken for season 2016 but seem to have found support and stabilised for subsequent seasons.
The agri-exporter currencies either went sideways or gained a little on the US Dollar on Friday. Again, none of them finished anywhere particularly novel. The Australian Dollar gained a half cent over Friday to start today at 74½¢.
Grains & Oilseeds
- Wheat futures has a mixed Friday but featured a sharp bounce in the Chicago and Kansas contracts. Both came off season lows. The weekend weather outlook took an unhelpful turn through the regions with poorly established hard red winter crops. Less snow and colder air were expected through the region. Weather forecasts were not certain this would produce crop damaging conditions but they are in the range of possibilities. The weather observations we have so far suggests it was cold with little precipitation through the region on Saturday.
- ASX East January wheat futures gave up another couple of dollars to close at another new season low of 211$. The big harvest continues to weigh. Friday’s moves in the offshore futures markets will give a positive lead for today’s trading.
- Corn futures moved higher on Friday amid quiet trade. Investors were likely buying back some short positions after prices touched two month lows the day prior. Producer selling remains limited at current prices and still no deliveries have been reported into the December contract. However the need to accelerate US exports remains a handbrake on higher prices. Aside from some drier pockets in Argentina, corn crops in South America are off to a good start, so the market will be factoring in reasonably large supply ideas for 2017.
- Soybean futures were mostly a touch weaker Friday, while canola came away with small gains. Conditions in Brazil are looking excellent, though the market retains some nascent concerns over dryness in southern Argentina. Forecasters say the next change for significant rain will be in about a week’s time, but confidence in the event is still low. Investors made sharp additions to their long position in ‘beans in the week to last Tuesday. Some of those are likely to have been liquidated in last week’s sell-off. Nevertheless, we think the market is at risk of looking overbought once Chinese demand pivots to South American supplies. If conditions in Argentina deteriorate further though, then the rationale for the large long position can quickly be revalidated.
US cotton futures zigged and zagged their way through Friday to ultimately close a shade higher. The temporary shortage of physical cotton supplies in India remains supportive for prices. The weekly positions report showed that investors have made some additions to their long position. That position is now very large. And any large position presents a risk that it will, at some point, be unwound. The USDA’s December WASDE report looms for Friday and, although major surprises are unlikely, there is a chance that US production forecasts could be upped. If investors become spooked it is unlikely that they can exit their positions without pushing prices down sharply for a period. The International Cotton Advisory Committee (ICAC) has lifted its forecast for the global cotton deficit this season, to 1.72mmt. That comes after Cotlook, another forecaster, reduced the expected production shortfall, to 1.58mmt, just last week.
Sugar futures prices had a second very mixed day to end last week. Prices for the remainder of the 2016 season continued to fall sharply, while 2017 season prices were unchanged and 2018 season prices gained a shade. The New York March contract traded below 19¢ for some of the day – five-month lows. Friday’s positions confirmed what most had already surmised from observing trading day-to-day: investors had sold another large chunk of their long position. The New York March saw some hefty sales since last Tuesday to suggest investors continued to exit long position over the rest of the week. We suspect investor’s still have some material selling to do but we are much closer to the end.
US live cattle futures ended the week on a weak note. The market recorded some sharp falls in early trade. Investors, in the week to last Tuesday, had raised their long positions significantly. We expect Friday’s action will have seen those new additions come under some liquidation. On the international trade front, Brazil continues to extend its global reach. Japan announced on Friday that it will re-allow imports of fresh and frozen beef from Brazil. Trade was halted in late 2012 following the discovery of BSE in Brazil. Japan’s Health Ministry still has some technical details to work through before trade can physically resume, though the ministry said it expects them to be resolved reasonably quickly. Japan was Australia’s second largest beef export market in 2015/16, with close to a fifty-fifty split of grass and grain fed product. Brazil’s beef industry is predominantly pasture based.
NZX WMP futures again edged higher to finish in a bullish groove ahead of next week’s GDT auction. The first five WMP futures months for 2017 are now at an average premium of 125US$ to the previous GDT auction.
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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.