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Agri Commodities Update: US Dollar rates a mention

The greenback surged on Friday as the market anticipates higher interest rates.  The rally relieved some pressure on domestic prices.

Currencies

The US Dollar strengthened against all the other agri-exporter currencies on Friday.  While the greenback’s gains were hefty it did not broadly push the commodity numeraire to novel levels.  The greenback largely regained recent losses.  The strength will have thrown a little downside into the melting pot of price influences.  The Australian Dollar followed that broad pattern.  The Aussie starts today a little over a cent lower at just under 75½¢. 

Grains & Oilseeds

  • Global wheat futures prices were mostly a shade weaker on Friday.  The US markets wilted for a while on Friday under pressure of a stronger US Dollar but quickly regained most of the lost ground come the close.  Global prices remain just a bad hair day above recent lows.  Investors already had very large short positions in Chicago and Kansas wheat.  Their selling has been a source of weakness recently as they were adding to their short up until last Tuesday.  Momentum remains on the weak side so they might still sell more.  The trade though seems happy to pick up wheat at attractive carry’s.  The divergence in view is a few months away from being reconciled.
  • ASX East January wheat futures were little changed on Friday to close at 232$.  Australian pricing, depending on your measure, is neutral to attractive for buyers.  The trade is – and will remain for some time yet – worried about the supply of milling grade grain in eastern Australia.  Their worries will support prices.
  • Corn futures posted modest price gains on Friday.  Very strong US export sales boosted the market higher.  Concern also remains over forecast rain in the Midwest for both this week and next.  The fears might later prove trivial in the scheme of a large US crop, but the trade will be worried about delayed supplies all the same.  Friday’s position report indicated that the investor short position grew even larger in the week to last Tuesday.  Investors are so now so short that the market, when it eventually does turn, will likely be in for a sharp recovery.  We think such a shift in sentiment though would require a significantly larger than expected cut to US yields in tonight’s WASDE report.
  • Soybeans futures finished the week on a positive note.  The demand narrative remains intact as US soybeans continue to fly out the door.  The market’s ideas about supply though will be tested by tonight’s WASDE update – analysts are expecting a slight upward revision to US yields.  Focus will soon start to turn to southern hemisphere spring planting.  Forecasters say both Brazilian and Argentinean crop areas are in need of rain to promote a favourable planting environment.  The big “La Nina worry” though appears to be on the back burner, with forecasters saying the odds now disfavouring much influence in South America.  Canola futures also rose on Friday, helped by a lower Canadian Dollar and broad gains in the vegetable oil markets.  Australian canola will continue to see a wetter bias which will heighten concerns over crop disease.

Cotton

US cotton futures finished a shade weaker Friday.  New York December opened sharply lower only to spend much of the day clawing back those early losses.  Another big week of US export sales provided the market with some support.  Friday’s position report showed that investors were actively buying back what remains of their short position but made an only minor additions to their long position.  A sign that perhaps the fundamentalists don’t see the cotton market going lower, but are more cautious about on a rally.  Forecasters say field conditions have improved significantly in the week post-Tropical Storm Hermine.  West Texas though is still looking at a week or so of largely unwanted rainfall.

Sugar

Sugar futures prices and spreads fell sharply on Friday.  New York October finished at lows of 19.99¢.  And the October-March spread set new lows for the 2016 season.  The March-May spread is at the lowest since June.  The super bullish edifice continues to crumble.  Friday’s positions report showed that investors’ long position was slightly less massive last Tuesday.  The trading volumes in spreads suggest much of that is being rolled – despite the ever increasing haircut.

Dairy

NZX WMP futures were higher on Friday.  The NZ Dollar again veered sharply away from recent highs.  Even so, the Kiwi remains more than 10¢ above year-ago levels - a small dampener for the NZ dairy industry as it takes a slice off the recent gains in global dairy prices.

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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